Tonghua Dongbao announced its results for the first quarter of 2024. In the first quarter of 2024, the company achieved operating income of 591 million yuan, -11.1% year on year, -39.9% month on month; net profit to mother was 215 million yuan, -14.3% year on month, -4 7.3% month on month; net profit without return to mother was 215 million yuan, -13.0% year on year and -47.6% month on month.

Actively responding to changes in insulin collection and renewal, premixed menthone insulin was included for the first time and is expected to win the bid for Class A1.

Tonghua Dongbao's performance declined in the first quarter of 2024, mainly in terms of insulin sales. Since a new round of insulin collection will be implemented in the near future, the company will cancel or refund the difference between the original supply price and the price at which the collection was carried out in the next few months. In order to reduce the workload associated with the one-time cancellation or refund of the difference, the company reasonably regulated the pace of delivery in the first quarter and reduced the delivery of insulin products, so sales revenue declined year-on-year. In the insulin collection contract renewal, the company's full line of insulin products was successfully selected as Class A. For the first time, premixed insulin was included in the scope of collection and selected in Class A1, which will greatly speed up the entry and release of the product throughout the country.

Sales of innovative products are going well, and the research pipeline is progressing at an accelerated pace. In terms of non-insulin products, the company's GLP-1 receptor agonist liraglutide injection and SGLT-2 inhibitor engliflozin tablets continued to advance online admission in various provinces and cities across the country during the reporting period, and have begun to contribute incremental sales revenue. In terms of pipeline promotion, in January 2024, the company's phase IIa clinical trial of URAT1 inhibitors (THDBH130 tablets), a new drug for gout, reached the main end; in February 2024, the phase I clinical trial of the XO/URAT1 dual-target inhibitor (THDBH151 tablets), which is expected to become first-in-class, reached the main end; in April 2024, the GLP-1/GIP dual-target receptor agonist (THDBH120 for injection) was clinically approved for weight loss indications. The company was clinically approved. GLP-1 pipelines have also entered clinical trials in the treatment of overweight and obesity.

Maintain a “Highly Recommended” investment rating. Tonghua Dongbao will rely on next-generation insulin collection, and rely on strong commercialization capabilities to increase the domestic market share of the company's insulin-like products, and accelerate the construction of an international system and capabilities to accelerate the international market expansion of insulin products and GLP-1 products. According to Tonghua Dongbao's product volume pace, we expect Tonghua Dongbao's net profit to be 12.3, 14.0, and 1.65 billion yuan respectively in 2024-2026, +6%, +13% compared to the same period last year. The corresponding PE is 17x, 15x, and 13x, respectively, maintaining a “highly recommended” investment rating.

Risk warning: Risk of sales falling short of expectations, risk of R&D falling short of expectations, risk of internationalization falling short of expectations, risk of changes in the payment environment, etc.