Incident: Nootech released its 2024 interim report. In 2024 H1, the company achieved revenue of 0.831 billion yuan (+107.47%), net profit attributable to mother of 0.227 billion yuan (YoY +442.77%), after deducting non-attributable net profit of 0.229 billion yuan (+433.45% year over year). In Q2 2024, revenue of 0.476 billion yuan (YoY +146.82%), net profit attributable to mother was 0.161 billion yuan (YoY +671.78%), and net profit not attributable to mother was 0.164 billion yuan (+735.89% YoY).

Comment:

Profitability has increased dramatically, and R&D investment has raised the cost rate. In terms of profit margin, 2024 H1 achieved a comprehensive gross profit margin of 67.32% (+9.73pp), net profit margin of 27.32% (+16.88pp), net profit margin of 27.59% (+16.86pp) after deducting net profit margin of 27.59% (+16.86pp). High demand for the company's products led to a significant increase in profitability due to three factors, such as increased revenue growth, continued increase in the share of high-margin products, and scale effects; in terms of cost ratios, the 2024 H1 period was 33.31% (+5.64pp), of which sales/management/development/finance expenses were respectively 3.45% (+0.28pp)/15.71% (-1.88pp)/13.53% (+8.85pp)/0.61% (-1.62pp), the company continues to increase R&D investment and raise the cost rate level.

Independent selection and customized products with two-wheel drive performance are growing at a high rate. 2024H1 achieved revenue of 0.545 billion yuan (+119.76%) with a gross profit margin of 70.85%; of these, API and intermediates revenue was 0.377 billion yuan, gross profit margin 77.36%, formulation revenue 0.168 billion yuan, and gross profit margin of 56.19%.

Customized and technical services achieved revenue of 0.286 billion yuan (+88.16%), with a gross profit margin of 60.75%; CDMO/CMO revenue of 0.281 billion yuan, gross profit margin of 60.11%; technology transfer service revenue of 0.005 billion yuan, gross profit margin of 96.02%. The company focuses on the field of peptides, responds quickly to market needs, collaborates with independent business and customized business, and drives high performance growth.

Maintaining the leading edge of “time+technology”, the competitiveness of APIs and formulations continues to increase. The company's technical advantages are obvious: in the first half of 2024, in terms of APIs, cetrorelix acetate, epastat, and agomelatine were approved for marketing in China, and the single batch production of various drugs such as simeglutide exceeded 10 kg; in terms of formulation, the company is expected to achieve full coverage of oseltamivir dosage forms within the year, and its core competitiveness in the field of antiviral drugs is expected to be further strengthened. Technical advantages bring time advantages: The company obtained FDADMF FAL for liraglutide and simeglutide APIs in 2023, and obtained the world's first FDA DMF for tirpotide APIs in February 2024.

Production capacity is expected to increase rapidly, driving the company's future development. The company has a rich production capacity layout, which is expected to be gradually released: ○1 The new 601 peptide workshop will be capped ahead of schedule, and the installation and commissioning will be completed by the end of 2024 to achieve 5 tons/year of peptide production capacity; ○2 The new 602 peptide workshop is expected to complete construction, installation and commissioning in the first half of 2025, which will release another 5 tons/year of peptide production capacity; ○3 Launch large-scale peptide and technological upgrading projects to add a higher tonnage of high-quality polypeptides; ○4 The new formulation factory will pass the hard capsule production line in July this year Pharmaceutical GMP compliance inspection, Achieve an annual production capacity of 4.5 billion tablets of formulations such as oseltamivir phosphate capsules; ○5 The second phase of the new formulation plant construction project will increase the company's production capacity for injections and freeze-dried powder injections; ○6 forward-looking layout and development of oligonucleotide production capacity. The project progressed smoothly, and the 705 workshop was capped.

Profit forecast and investment advice: We expect the company's revenue to be 1.691/2.314/3.117 billion yuan in 2024-2026, up 63.6%/36.9%/34.7% year on year; net profit to mother will be 0.417/0.56/0.752 billion yuan respectively, up 156.2%/34.0%/34.4% year on year, corresponding to 2024-2026 PE, 32.7/24.4/18.2 times, maintaining the “buy” rating.

Risk factors: Risks such as increased competition in the industry, declining demand for R&D investment and outsourcing, policy risks, and new business development falling short of expectations.