Incident: The company released its 2024 three-quarter report. In the first three quarters of 2024, it achieved operating income of 1.011 billion yuan (+0.82%), net profit attributable to shareholders of listed companies of 0.108 billion yuan (+19.74%), and net profit of 0.11 billion yuan (+16.26%) after deducting net profit not returned to mother.

Revenue improved month-on-month, and profitability increased. On a quarterly basis, the company's revenue for the 3rd quarter was 0.414 billion yuan, a year-on-year decrease of 4.51%, but the year-on-month increase was 7.85%. We think it was mainly due to:

1. At present, more than 90% of Jinshuxi mining provinces have begun implementation, and delivery is expected to return to normal in the 3rd quarter; 2. Avatripopa was approved in the first half of 2024, which is expected to contribute to a certain increase in revenue in the 3rd quarter. Looking ahead to the whole year, we believe that Kailiwei is expected to maintain a steady growth trend, and Kim Soo-hee is expected to recover steadily after absorbing the pressure to reduce the price of collection. The 24Q3 sales expense ratio was 43.59%, down 10.69pct from month to month. We think it was mainly due to: 1. Kim Soo-hee collected and executed, and terminal promotion costs were reduced; 2. The company continues to promote cost reduction and efficiency measures. 24Q3's net profit/revenue to mother reached 15.86%, the highest level in recent quarters. We believe there is still room for improvement in profit margins as the company's operating efficiency continues to improve.

Innovative drug development continues, and long-acting interferons are being implemented soon. The company's application for marketing approval to develop interferon alpha-2 injections to increase new indications of chronic hepatitis B in adults has recently been accepted by the State Drug Administration. Interferon alpha-2 injection is a recombinant integrated interferon modified with PEG. Among them, recombinant interferon is obtained through sequence homology comparison of more than ten natural alpha interferon subtypes and analysis and integration according to the highest principles of homologous sequence. It has higher activity than normal alpha interferon, has a longer half-life, and is suitable for administration once a week. We believe that after approval of this indication, the integrated interferon alpha-2 injection will provide a new clinical solution option for people with an advantage in clinical treatment of hepatitis B, and has great market potential in the future.

Profit forecasting and valuation. Based on the results of the 2024 3 quarter report, we adjusted the profit forecast. We expect the company's operating income from 2024 to 2026 to be 1.566 billion yuan, 1.858 billion yuan, and 2,245 billion yuan, respectively, with year-on-year growth rates of 10.9%, 18.7%, and 20.8%, respectively; net profit to mother is 0.143 billion yuan, 0.185 billion yuan, and 244 million yuan, respectively, with year-on-year growth rates of 22.7%, 29.4% and 31.6%, respectively. Calculated at the closing price on October 23, the corresponding PE was 32.6, 25.2, and 19.2 times, respectively, maintaining the “buy” rating.

Risk warning: The price reduction in follow-up medical insurance renewal negotiations with clopavir exceeded expectations; the progress of long-term interferon treatment of hepatitis B was lower than expected; the price drop after the product was included in collection exceeded expectations.