Description of the event

The company released its 2024 semi-annual report. In the first half of 2024, it achieved operating income of 3.595 billion yuan, a year-on-year decrease of 1.10%; realized net profit to mother of 0.369 billion yuan, an increase of 21.89% over the previous year; and realized net profit deducted from non-mother of 0.371 billion yuan, an increase of 27.19% over the previous year.

Incident comments

Core business brand operations increased month-on-month. Brand operations in the company's core business sector have maintained steady growth. The main brands are in the growth period and have formed a brand matrix, and the growth momentum continues to increase; the wholesale distribution business sector continues to shrink, and the company actively responds to weak market demand and dual adjustments in policy regulation, optimizing and upgrading from traditional wholesale distribution business to regional brand business. The business quality has steadily improved, which has had a year-on-year impact on revenue in the short term; the retail business sector has remained stable. Specifically, the core business brand operating business achieved revenue of 2.284 billion yuan, an increase of 11.88% over the previous year, and the gross profit ratio reached 88.86%, which is the company's main source of profit. Among them, revenue of 1.364 billion yuan was achieved in the second quarter, up 21.30% year on year and 48.41% month on month over the first quarter.

The growth of core varieties is accelerating. The good growth of the brand operation business, which is the main source of profit, is due to the acceleration of the growth of core products. 1) The company's core brand Diqiao series achieved revenue of 1.055 billion yuan in the first half of the year, an increase of 20.32% over the previous year. If calculated after reverting to the two-ticket system business, it achieved revenue of 1.107 billion yuan, an increase of 21.13% over the previous year. As the company's core brand, the company continues to focus on the “imported calcium” category, continuously strengthens product life cycle management and digital marketing capabilities, and realizes the continuous growth of Diqiao OTC, health products, cross-border food and small yellow bar series products. In terms of product regulations, the company introduced liquid calcium in small vermicelli to meet the calcium supplement needs of women, especially pregnant women; 2) Hailu achieved operating income of 0.327 billion yuan, an increase of 24.22% year on year; 3) Astellas series achieved revenue of 0.286 billion yuan, an increase of 64.19% year on year; 4) Newt Schuma achieved revenue of 0.058 billion yuan, an increase of 37.11% year on year.

Expand internal and external cooperation and develop innovation incubation platforms. On the one hand, through cooperative incubation, the company increased the richness of its product matrix. The radionuclide conjugation drug (RDC) 99mTc-3pRGD2, which the company helped develop independently, is the first Class 1 innovative drug independently developed in the field of nuclear medicine in China. It has completed phase III clinical trials in China and is in the marketing application stage. On the other hand, through the acquisition of shares in Shanghai Baiyang Pharmaceutical Co., Ltd., Qingdao Baiyang Investment Group Co., Ltd., Qingdao Baiyang Yiren Investment Management Co., Ltd., and Beijing Baiyang Kanghe Technology Co., Ltd., the company held a total of 60.199% of the shares. As of July 12, 2024, the transaction had been settled, and the merger and acquisition of Baiyang Pharmaceutical helped listed companies achieve “commercialization+development and production” two-wheel drive.

We predict that the company's net profit for 2024-2026 will be 0.852 billion yuan, 1.032 billion yuan, and 1,239 billion yuan, corresponding PE of 14/12/10 times, respectively, giving it a “buy” rating.

Risk warning

1. The progress of newly introduced brand promotion falls short of expectations;

2. The expansion of the brand matrix fell short of expectations.