The Pearl Group released its 2024 annual report. In the first half of 2024, the company achieved operating income of 6.282 billion yuan, -6.09% year-on-year; net profit to mother of 1.171 billion yuan, +3.21% year-on-year; net profit after deducting non-attributable net profit of 1.155 billion yuan, +5.65% year-on-year.
Looking at 2024Q2 alone, the company achieved operating income of 3.04 billion yuan, -7.24% year over year; net profit to mother 0.563 billion yuan, +1.90% year over year; net profit after deducting non-return to mother 0.565 billion yuan, +7.91% year over year.
Opinion: The performance is in line with expectations, and we expect BD to accelerate progress.
On the revenue side, 2024H1 declined slightly compared to 2023H1. We believe that the impact of the price reduction still needs to be digested due to the price reduction in medical insurance negotiations for iprazole injections; based on the clinical characteristics of the product and the company's sales resources in the digestive tract field, future releases are expected to accelerate; in addition, the 2023Q1 infection and supplement demand base is high. On the profit side, negative effects such as vaccine impairment have been cleared. The company has managed sales expenses and R&D expenses reasonably to achieve steady growth, which is in line with expectations.
By sector, chemical agents achieved revenue of 3.224 billion yuan, a year-on-year decrease of 7.37%. Among them, digestive tract revenue of 1.301 billion yuan was -19.96% yoy, gonadotropin income of 1.549 billion yuan, +12.51% yoy, spiritual income 0.297 billion yuan +6.68% yoy, anti-infective income of 77.82 million yuan -61.23%; biological products achieved revenue of 87.55 million yuan, a year-on-year decrease of 22.80%; raw materials and intermediates achieved revenue of 1.761 billion yuan, a year-on-year decrease of 1.16%; traditional Chinese medicine Formulations achieved revenue of 0.745 billion yuan, a year-on-year decrease of 21.89%; diagnostic reagents and equipment achieved revenue of 0.394 billion yuan, an increase of 32.33% over the previous year.
In terms of financial indicators, 2024H1's sales expenses of 1.74 billion yuan were -11.57% year over year, sales expense ratio was 27.69% year over year; management expenses were 0.331 billion yuan +6.43% year over year, management expense ratio 5.27% year over year +0.62 pp; R&D expenses of 0.491 billion yuan -19.67% year over year, R&D expenses rate of 7.81% yoy -1.32pp; operating cash flow of 1.53 billion yuan increased 24.67% year over year.
Sales rates are reduced and BD is strengthened, and the company's operating efficiency is expected to continue to improve. In its semi-annual report, the company also proposed full implementation of compliant marketing, the addition of a self-employed team, and a significant year-on-year decrease in sales rates; the gross margins of the chemicals, APIs, and traditional Chinese medicine sectors increased by 2.27pp/0.51 pp/7.08pp, respectively, over the same period last year, and the quality of operations continued to improve. The company has sufficient cash on its account, and has introduced innovative DHODH inhibitors in the anti-infective field, innovative PDE5 inhibitors in the andrology field, and the innovative neuropsychiatric drug KCNQ2/3; the semi-annual report also suggests that BD will be the company's priority in innovative research and development for a long period of time until 2024H2. In line with the further improvement of the company's compliance sales capability advantages in characteristic fields, it is expected to accelerate development.
In terms of research and development, triprarelin microsphere endometriosis has been submitted in the chemical medicine sector, and clinical trials have been initiated for central precocious puberty indications; aripiprazole microspheres have completed on-site pharmacy registration and clinical verification, and received a supplementary notice; P-CAB product JP-1366 tablets, HHT120 capsules to prevent venous thromboembolism after major orthopedic surgery, and SG1001 tablets for aggressive mycosis have entered clinical phase I. Human follicle-stimulating hormone in the biological products sector is expected to obtain phase III clinical endpoint analysis results and pre-BLA declarations in 2024Q3; simeglutide type II diabetes indications have been reported for production and are undergoing technical review; weight loss indications have obtained clinical approval and are being prepared for phase III clinical trials; recombinant anti-human IL-17A/F monoclonal antibodies have completed the enrollment of patients with psoriasis and ankylosing spondylitis.
Profit forecasting and valuation. Based on the company's excellent management, sales team, monoclonal antibody platform, microsphere platform, etc., the company's long-term investment value is outstanding. Based on the current state of the company's operations, we have slightly lowered our profit forecast. Net profit due to mother in 2024-2026 is estimated to be 2.21 billion yuan, 2.482 billion yuan, and 2.799 billion yuan, respectively, with increases of 13.1%, 12.3%, and 12.8%, respectively. EPS is 2.39 yuan, 2.68 yuan, and 3.02 yuan respectively, and the corresponding PE is 15x, 13x, 12x, respectively. We believe that the company's performance growth rate is highly deterministic, the valuation is low, the long-term layout of innovative biopharmaceuticals+high-end complex formulations, and the internationalization strategy is expected to continue to advance in the future. We are optimistic about the company's long-term development and maintain a “buy” rating.
Risk warning: risk of changes in industry policies, risk of product price reduction, risk of new drug development.