Key points of investment

Incident: Kangyuan Pharmaceutical released its 2024 semi-annual report. During the reporting period, it achieved revenue of 2.26 billion yuan (YoY -11.49%), net profit of 0.265 billion yuan (YoY -3.73%), net profit of 0.221 billion yuan (YoY -15.95%); Single Q2 achieved revenue of 0.901 billion yuan (YoY -24.98%), net profit of 0.117 billion yuan (YoY -12.59%), net profit not attributable to mother 0.081 billion yuan (-34.22% YoY); performance fell short of expectations.

The company's short-term business performance is under pressure, mainly due to facing multiple internal and external complex environments and challenges in the process of promoting and improving comprehensive compliance. In the context of professional marketing and compliance marketing, the company strengthens academic transformation and empowerment. Relying on the “Dr. Pan Project”, the company helps the company's marketing team improve academically and professionally through (1) product knowledge training and six-step skills training for diagnosis and treatment, and (2) professional academic discourse training according to customer hierarchy.

By product, 24Q2 injection/oral liquid/capsules/granules/pills/patches/gels achieved revenue of 3.02/1.75/2.05/0.58/0.087/0.053/0.013 billion yuan, compared to the same period: -46.83%/+25.28%/-19.27%/-14.65%/-10.95%/-8.78%/+61.89%. Oral liquid and gel products performed well, mainly due to the year-on-year increase in sales of Jinzhen oral liquid and musculoskeletal pain gel; this is mainly due to the year-on-year increase in sales of Jinzhen oral liquid and muscle pain relief gel; Total revenue of 0.599 billion yuan, -5.35% YoY.

The profit level declined slightly, mainly due to the significant increase in management expenses brought about by the company's increased investment in talent and the development of management-related activities. 24Q2 gross margin was 74.45%, -0.33pct; sales/management/R&D expense ratios were 38.36%/10.39%/14.99%, year-on-year, -2.79/+5.81/+0.43pct; net margin after deducting non-return mother was 9.00%, -1.26pct year on year.

Continue to promote research and development of new products. 24H1 Traditional Chinese Medicine submitted 3 types of NDA (Longqi capsules, Shenpu Penan granules, and Yu Nu Pan granules), completed 2 Phase III clinical research varieties (Pisces pellets, Suxintongji granules), and obtained 2 clinical trial approval notices (Qiangqin granules, Shichimi lipid and liver granules); the innovative chemical drug completed 1 phase II clinical case enrollment (DC20), and obtained 2 clinical trial approval notices (AAPB for injections (10mg, 25mg)); Chemical generic drugs obtained 3 drug registration certificates (AAPB for injections (10mg, 25mg)) Pirampanide tablets (2mg, 4mg), posaconazole intestines Tablet); Biopharmaceutical developed 1 phase I clinical variety (KYS202002A injection for multiple myeloma and systemic lupus erythematosus indications).

Maintain a “buy” rating. Considering that the reform of the company's marketing system has been blocked for a long time, we lowered the revenue estimates for core products such as injections and capsules. We expect net profit to be 5.43/ 0.624/0.712 billion yuan in 2024-2026, up 1.23%/14.88%/14.11% year-on-year, and EPS is 0.93/1.07/1.22 yuan, corresponding to PE15.16x/13.20x/11.57x. Considering that the company has strong R&D strength and channel vitality given by marketing reforms, it maintains a “buy” rating.

Risk warning: R&D innovation risks, policy adjustment risks, sales falling short of expected investment points? Incident: Kangyuan Pharmaceutical released its 2024 semi-annual report. During the reporting period, it achieved revenue of 2.26 billion yuan (YoY -11.49%), net profit of 0.265 billion yuan (YoY -3.73%), net profit of 0.221 billion yuan (YoY -15.95%); Single Q2 achieved revenue of 0.901 billion yuan (YoY -24.98%), net profit to mother 0.117 billion yuan (YoY -12.59%), net profit not attributable to mother 0.081 billion yuan (-34.22% YoY); performance fell short of expectations.

The company's short-term business performance is under pressure, mainly due to facing multiple internal and external complex environments and challenges in the process of promoting and improving comprehensive compliance. In the context of professional marketing and compliance marketing, the company strengthens academic transformation and empowerment. Relying on the “Dr. Pan Project”, the company helps the company's marketing team improve academically and professionally through (1) product knowledge training and six-step skills training for diagnosis and treatment, and (2) professional academic discourse training according to customer hierarchy.

By product, 24Q2 injection/oral liquid/capsules/granules/pills/patches/gels achieved revenue of 3.02/1.75/2.05/0.58/0.087/0.053/0.013 billion yuan, compared to the same period: -46.83%/+25.28%/-19.27%/-14.65%/-10.95%/-8.78%/+61.89%. Oral liquid and gel products performed well, mainly due to the year-on-year increase in sales of Jinzhen oral liquid and musculoskeletal pain gel; this is mainly due to the year-on-year increase in sales of Jinzhen oral liquid and muscle pain relief gel; Total revenue of 0.599 billion yuan, -5.35% YoY.

The profit level declined slightly, mainly due to the significant increase in management expenses brought about by the company's increased investment in talent and the development of management-related activities. 24Q2 gross margin was 74.45%, -0.33pct; sales/management/R&D expense ratios were 38.36%/10.39%/14.99%, year-on-year, -2.79/+5.81/+0.43pct; net margin after deducting non-return mother was 9.00%, -1.26pct year on year.

Continue to promote research and development of new products. 24H1 Traditional Chinese Medicine submitted 3 types of NDA (Longqi capsules, Shenpu Penan granules, and Yu Nu Pan granules), completed 2 Phase III clinical research varieties (Pisces pellets, Suxintongji granules), and obtained 2 clinical trial approval notices (Qiangqin granules, Shichimi lipid and liver granules); the innovative chemical drug completed 1 phase II clinical case enrollment (DC20), and obtained 2 clinical trial approval notices (AAPB for injections (10mg, 25mg)); Chemical generic drugs obtained 3 drug registration certificates (AAPB for injections (10mg, 25mg)) Pirampanide tablets (2mg, 4mg), posaconazole intestines Tablet); Biopharmaceutical developed 1 phase I clinical variety (KYS202002A injection for multiple myeloma and systemic lupus erythematosus indications).

Maintain a “buy” rating. Considering that the reform of the company's marketing system has been blocked for a long time, we lowered the revenue estimates for core products such as injections and capsules. We expect net profit to be 5.43/ 0.624/0.712 billion yuan in 2024-2026, up 1.23%/14.88%/14.11% year-on-year, and EPS is 0.93/1.07/1.22 yuan, corresponding to PE15.16x/13.20x/11.57x. Considering that the company has strong R&D strength and channel vitality given by marketing reforms, it maintains a “buy” rating.

Risk warning: R&D innovation risk, policy adjustment risk, sales falling short of expectations