Results were in line with expectations, and Q2 performance improved significantly month-on-month

The company released its 2024 semi-annual report: 2024H1 operating income of 1.068 billion yuan (-10.53%), net profit of 0.301 billion yuan (-20.70%), net non-net profit of 0.274 billion yuan (-25.21%), and net operating cash flow of 0.203 billion yuan (+7.16%). On a quarterly basis, 2024Q1-Q2 achieved operating income of 0.483 billion yuan (-32.59%), 0.586 billion yuan (+22.50%), net profit due to mother 0.1 billion yuan (-40.90%) and 0.201 billion yuan (-4.45%), after deducting non-net profit of 0.088 billion yuan (-46.57%) and 0.187 billion yuan (-7.96%), respectively. The company's performance declined in the first half of the year due to a sudden sharp increase in sales during the same period last year and high social inventory, but Q2 revenue and profit improved significantly month-on-month, and operations continued to improve.

2024H1 gross margin was 74.73% (+1.46pct), of which industrial gross margin was 76.37% (-1.37pct), commodity circulation gross margin 28.64% (-2.74pct), and other business gross margin -3.14% (+42.08pct). 2024H1 net margin was 28.17% (-3.61pct).

In terms of the cost ratio, the 2024H1 sales expense ratio is 27.28% (+4.35pct), increasing marketing and sales efforts; the management expense ratio is 7.17% (-0.64pct); the R&D cost rate is 7.40% (+2.04pct); and the financial cost ratio is -0.12% (-0.04pct).

Focus on market promotion, further promote cost reduction and efficiency, and consolidate continuous and steady growth. Looking at the segment, the 2024H1 industrial sector has revenue of 1.038 billion yuan (-5.60%); the commercial distribution sector has revenue of 0.022 billion yuan (-5.62%). 2024H1 strives to overcome the impact of adverse factors such as the external economic environment, market demand, and pharmaceutical policy changes, and promptly investigated the market situation, adjusted marketing strategies, and increased marketing and sales efforts; made continuous efforts in R&D and product diversification, increased investment in R&D, and actively built a product moat to enhance the competitiveness of the company's products; adhere to the cost efficiency orientation, further promote lean management, and improve equipment production capacity and production efficiency.

The company continues to advance an integrated two-wing development strategy of “the pharmaceutical industry with traditional Chinese medicine as the core and roots, with the biotechnology industry and the health industry focusing on biopharmaceuticals as the two wings, and related industries as the two wings”, and continues to consolidate or strengthen its leadership or leading position in the fields of oral and throat medicine, urinary system medicine, etc. In the future, first-tier varieties open up empty markets in hospitals, and second-tier and third-tier varieties grow rapidly. There is plenty of room for improvement. The biopharmaceutical sector is expected to further reduce losses and has a solid foundation for steady growth.

Profit forecasting and investment advice

The company's revenue for 2024-2026 is estimated to be 2.389/2.639/2.916 billion yuan, and net profit to mother is 0.481/0.531/0.587 billion yuan, respectively. The PE corresponding to the current stock price is 16.55/14.98/13.54 times, respectively, maintaining a “buy” rating.

Risk warning:

Risk of channel promotion falling short of expectations; risk of drug development failure.