Sino Biopharmaceutical announced 1H24 revenue of Rmb15.87bn (+11.1% YoY) and net profit of Rmb3.02bn (+139.7% YoY). Excluding the one-off gains of Rmb1.61bn from disposal of equity interest of CP Qingdao and other one-off items, its adjusted net profit reached Rmb1.54bn (+14.0% YoY), in line with our expectation. Its blended gross margin increased 0.3ppts YoY to 82.1% in 1H24. With the rising operating efficiency, its SG&A ratio decreased 0.5ppts YoY to 43.1%. Its total R&D expenses reached Rmb2.58bn (+9.4% YoY) in 1H24, with the R&D expense ratio of 16.2% (vs 16.3% in 1H23). As of the end of June 2024, the company has cash balance of over Rmb20.0bn. We maintain our adjusted diluted EPS forecast of Rmb0.16 in 24E, Rmb0.17 in 25E and Rmb0.19 in 26E. We maintain our target price of HK$3.9. With 31% upside, we maintain BUY rating.
　　New products drive the sales growth. Sales of innovative drugs increased +15% YoY to Rmb6.1bn, representing 39% of its total revenue in 1H24 (vs 37% in 1H23), mainly driven by the sales ramp up of new products approved in 2023, such as efbemalenograstim alfa and biosimilar products, including bevacizumab, rituximab, trastuzumab, etc. In addition, four innovative products (benmelstobart (PD-L1), unecritinib, envonalkib and liraglutide) have been launched in 1H24, which will further improve its sales growth. In addition, sales of generics reached Rmb9.7bn (+9% YoY). As for the therapeutic fields, sales of oncology, surgery/analgesia and respiratory system products increased 20% YoY, 30% YoY and 5% YoY, to Rmb5.4bn, Rmb2.6bn and Rmb1.8bn in 1H24, representing 34%, 16% and 11% of its total revenue. In addition, sales of hepatitis and cardio-cerebral drugs decreased 11% YoY and 15% YoY, respectively, representing 13% and 9% of its total revenue.
　　Innovative pipeline entering the harvest period. As of the end of June 2024, the company has 43 innovative oncology drugs under clinical or above development stage, including three under NDA stage, five in phase III clinical trials and 17 in phase II clinical trials, which is expected to launch four innovative drugs in 2024E-2026E, including D-1553 (KRAS G12C inhibitor) and TQB3616 (CDK2/4/6 inhibitor). In terms of surgery/analgesia field, the company expects three innovative drugs to be launched in 2024E-2026E, including PL-5 (antimicrobial peptide). In general, with its innovative pipelines entering the harvest period, the number of innovative products is expected to increase from 11 in 2023 to 15 in 2024E, 20 in 2025E and over 25 in 2026E, with the sales contribution rising from 40% in 2024E to 45% in 2025E and 50% in 2026E.
　　Continuous investments on innovative pipelines. The R&D expense ratio of innovative drugs to the total R&D costs further increased from 75% in 1H23 to 76% in 1H24. The company actively explores external R&D collaboration opportunities, with the focus on four major therapeutic fields, including oncology, surgery/analgesia, hepatitis, and respiratory system. In April 2024, to further enrich its oncology product pipeline, the company reached strategic collaboration with BI for development and commercialisation of oncology pipelines in China, including three clinical-stage products (brigimadlin (MDM2-p53 antagonist), zongertinib (HER2 selective TKI) and BI 764532(DLL3/CD3 bispecific T cell engager)) and other preclinical products.
　　Maintain BUY. We maintain our adjusted diluted EPS forecast of Rmb0.16 in 24E, Rmb0.17 in 25E and Rmb0.19 in 26E. We maintain our target price of HK$3.9. With 31% upside, we maintain BUY rating.
　　Risks: Lower-than-expected product sales; delay of key R&D pipeline.