With the integrated development of APIs and formulations, 24H1 achieved revenue of 2.183 billion yuan. The company is a comprehensive manufacturer integrating the entire R&D, production and marketing value chain, APIs and formulations. Its main business is the development, production and sale of steroidal APIs and formulations. The company's main products are divided into four categories: corticosteroid drugs, sex hormone drugs (gynecology and family planning drugs), anesthetic muscle relaxants, and respiratory drugs. In the first half of 2024, the company achieved operating income of 2.183 billion yuan (+0.93% YoY) and net profit to mother of 0.34 billion yuan (+12.56% YoY).

Formulations: New products bring new growth, and omexone sodium is ready to be declared. In the first half of 2024, the company's formulation revenue was 1.215 billion yuan (+10.6% YoY). Pharmaceutical products gradually overcome the impact of collection, actively develop new products and cultivate new growth potential; revenue stabilized under the influence of regional collection of gynecological products progesterone capsules (imaxin), and new products, norethisterone enanthate injections and drospirenethinyl estradiol tablets, gradually formed new growth potential; major anesthetic muscle relaxants have been collected in the past two years, and recovered after collection, and the new product sugenglucosamine grew rapidly. Respiratory products maintained good growth; generic drug products declined slightly due to the collection of dexamethasone sodium phosphate injections. In terms of formulation innovation, the company focuses on building three innovative technology platforms in terms of formulation innovation: (1) pulmonary inhalation platform, (2) long-term formulation technology platform, and (3) suspension formulation technology platform. In August 2024, the company completed data preparation for Omexone Sodium and is about to file an NDA.

APIs: Increased sales volume overcame downward price pressure. In the first half of 2024, sales revenue of APIs and intermediates was 0.91 billion yuan, down 9% year on year. Among them, sales revenue of major proprietary APIs was 0.489 billion yuan, down 1.2% year on year, sales revenue of the Italian subsidiary was 0.297 billion yuan, down 15% year on year, Xianyao Trading Company's sales revenue was 0.11 billion yuan, and other API trade was 0.012 billion yuan. The company exploited the advantages of new production capacity and actively expanded the market. The increase in sales volume of APIs overcame the adverse effects of falling sales prices.

Profitability forecasting assumptions. 1) With the gradual stabilization of demand for APIs, the API business is expected to rise steadily. We expect revenue to grow by -3%/5%/6% in 2024-2026; 2) The impact of pharmaceutical product collection will gradually be cleared, and the launch of new products may release new growth potential. Revenue is expected to grow 17%/22%/18% in 2024-2026.

Profit forecasting and valuation. We expect the company's 2024-26 revenue to be 4.453/5.124/5.834 billion yuan, net profit to mother 0.7/0.846/0.972 billion yuan, and EPS of 0.71/0.86/0.98 yuan. Referring to comparable companies Tonghe Pharmaceutical, Sinopharm Hyundai, Huahai Pharmaceutical, and New Novi, we gave the company 2024 P/E20-25x, a reasonable value range of 14.14-17.68 yuan, and a reasonable market value range of 18.8-23.5 billion yuan, giving it a “superior to the market” rating.

Risk warning. The risk of sales falling short of expectations, the risk of exchange rate fluctuations, the risk of price fluctuations of APIs, and the risk that the progress of products under development falls short of expectations.