Investment Rating - The investment rating for the company is "Outperform the Market" [5][3][27] Core Views - The company's overall performance in 2024 is under pressure due to the impact of the bromhexine hydrochloride incident, with revenue decreasing by 10.7% to HKD 57.73 billion and net profit declining by 19.5% to HKD 10.61 billion [1][7][3] - Despite short-term challenges, the long-term outlook for the formulation business is promising, with significant growth expected [3][26] - The company has maintained good cost control, with a sales expense ratio of 19.8% and a management expense ratio of 5.2% [7][1] Summary by Sections Revenue and Profitability - In 2024, the company achieved revenue of HKD 57.73 billion, down 10.7%, and a net profit of HKD 10.61 billion, down 19.5% [1][7] - The gross margin for 2024 was 50.4%, a decrease of 5.6 percentage points, while the net margin was 18.4%, down 2.0 percentage points [1][7] Business Segments - The large-volume infusion business generated revenue of HKD 37.35 billion, a decrease of 7.6%, with sales volume increasing by 6.7% to 2.036 billion bags [1][17] - The oral formulation business grew by 4.9% to HKD 5.02 billion, driven by significant sales increases in key products [2][13] - The raw material drug business saw a decline of 11.7% to HKD 7.85 billion due to international market pressures [2][13] Research and Development - The company invested HKD 2.66 billion in R&D in 2024, obtaining 112 production approvals and 7 clinical approvals [2][26] - The development of complex formulations and innovative drugs is progressing, with a focus on various advanced drug delivery technologies [2][26] Financial Forecasts - The company expects net profits to be HKD 10.37 billion, HKD 10.79 billion, and HKD 11.78 billion for 2025, 2026, and 2027 respectively, reflecting a slight decline in 2025 followed by modest growth [3][26] - Revenue projections for the next three years indicate a continued recovery, with expected growth in the formulation segment [3][26]

Financial Performance - In 2024, the company achieved a total sales revenue of approximately RMB 5.266 billion, a year-on-year decrease of 9.6%[7] - The net profit for 2024 was approximately HKD 1.061 billion, representing a year-on-year decline of 19.5%[7] - The gross profit margin for the year was 50.4%, down by 5.6 percentage points compared to the previous year[7] - For the fiscal year ending December 31, 2024, the company's total revenue decreased by 10.7% to HKD 5,773,251,000, down from HKD 6,463,009,000 in 2023[35] - The revenue from intravenous infusion products was HKD 3,734,689,000, a decrease of 7.6% compared to HKD 4,040,743,000 in the previous year, despite a 6.7% increase in overall sales volume[37] - The revenue from non-PVC soft bag infusion products was HKD 1,751,834,000, accounting for 46.9% of intravenous infusion revenue, reflecting a decline of 16.4%[37] - The revenue from active pharmaceutical ingredients was HKD 784,583,000, down 11.7% from HKD 888,867,000 in 2023, attributed to market prices not fully recovering from last year's decline[38] - The revenue from oral formulations increased by 4.9% to HKD 501,695,000, driven by growth in new products such as cefdinir capsules and rosuvastatin calcium tablets[38] - The gross profit for the year was HKD 2,908,262,000, down from HKD 3,619,639,000 in 2023, resulting in a gross margin decline of 5.6 percentage points to 50.4%[41] - Operating profit decreased by 18.0% to HKD 1,343,500,000, with an operating margin of 23.3%, down from 25.4% in the previous year[46] - Net profit attributable to equity holders fell by 19.5% to HKD 1,061,150,000, with a net profit margin of 18.4%, down from 20.4%[49] Sales and Market Activity - The company completed 44 generic names and 56 specifications for market access, with 13 generic names and 14 specifications approved in over 30 provinces[9] - The total sales volume of large-volume parenterals reached 2.036 billion bottles (bags), an increase of 6.7% year-on-year[10] - Sales revenue from oral formulations reached approximately HKD 502 million, reflecting a year-on-year growth of about 4.9%[11] - The sales of caffeine increased by approximately 44% year-on-year, with a total sales volume of 5,478 tons[11] - The company actively participated in over a thousand bidding activities, particularly excelling in provincial alliance procurement[9] - The export sales of infusion products amounted to approximately HKD 178 million in 2024, reflecting a year-on-year growth of about 9%[14] - The export volume of infusion products reached approximately 118 million bottles (bags) in 2024, a year-on-year increase of about 11%[14] Research and Development - The group obtained 112 production approvals and 7 clinical approvals during the year, maintaining a leading position in the industry[15] - A total of 131 product applications were submitted, including 76 new varieties of liquid and solid preparations[16] - The group has successfully passed consistency evaluations for 117 varieties and 156 specifications, enhancing product accessibility[18] - The group applied for 88 patents and was granted 51 patents in 2024, with a total of 552 patent applications filed to date[19] - The group is advancing the development of complex formulations, including liposomal injections and sustained-release microspheres, enhancing its technical influence in the field[17] - The company is committed to integrating "raw materials + formulations" for innovative drug development and enhancing research and development efficiency through technology[25] Corporate Governance - The board of directors consists of five executive directors, one non-executive director, and three independent non-executive directors as of December 31, 2024[69] - The company has maintained compliance with the corporate governance code as per the Hong Kong Stock Exchange's listing rules for the year ending December 31, 2024, with one exception regarding the separation of roles between the chairman and CEO[68] - The chairman, Mr. Qu Jiguang, also serves as the CEO, which the board believes is in the best interest of the company for efficient strategy execution[68] - The board is responsible for overseeing the company's business, strategic direction, and performance, ensuring compliance with legal and regulatory requirements[69] - The company emphasizes the importance of good corporate governance practices for growth and shareholder value creation[67] Employee and Compensation - Total employee compensation costs for the year ended December 31, 2024, were approximately HKD 774,835,000, an increase of 8.1% from HKD 717,031,000 in 2023, mainly due to an increase in employee numbers[54] - The number of employees increased to approximately 6,100 as of December 31, 2024, compared to about 5,600 on December 31, 2023[53] - Employee turnover rate decreased to 14.6% in 2024 from 16.5% in 2023, indicating improved employee retention[145] - The company provided a total of 3,106 workdays lost due to occupational injuries in 2024, up from 1,404 in 2023[148] - The company has maintained a zero fatality rate due to work-related incidents for three consecutive years[148] - Employee compensation is regularly reviewed and adjusted based on social development, price increases, and company performance[143] - The company promotes equal pay for equal work, ensuring that male and female employees receive the same starting salaries[143] Environmental, Social, and Governance (ESG) - The company has established a comprehensive ESG governance framework in accordance with the Hong Kong Stock Exchange's guidelines[109] - The report covers the company's environmental and social performance in China for the reporting period from January 1, 2024, to December 31, 2024[111] - The company recognizes its responsibility to operate in a more responsible and sustainable manner, integrating ESG considerations into daily operations[109] - The company has established three efficient wastewater treatment plants, utilizing advanced biochemical and physical-chemical combined treatment processes to enhance wastewater treatment efficiency and ensure discharge quality meets local government standards[125] - The company has implemented a strict waste classification management system, ensuring safe handling of hazardous waste throughout its lifecycle[126] - The company has not reported any violations of emission laws and regulations in 2024[125] - The company has engaged stakeholders through various channels, including regular meetings and community activities, to align business strategies with stakeholder expectations[118] Dividend and Shareholder Information - The company plans to distribute a final dividend of HKD 0.095 per share, totaling an annual dividend of HKD 0.175 per share, a year-on-year increase of 2.9%[7] - The total dividend for the year ending December 31, 2024, is proposed to be HKD 0.175 per share, an increase from HKD 0.17 per share in 2023[172] - The company's distributable reserves as of December 31, 2024, are approximately HKD 433,318,000, up from HKD 320,247,000 in 2023[177] - The company repurchased a total of 11,830,000 shares at a total cost of approximately HKD 44,563,000 during the year ending December 31, 2024[179] Compliance and Risk Management - The company emphasizes the importance of compliance and risk management, particularly in response to government policies affecting the pharmaceutical industry[27] - The company aims to enhance compliance standards and ensure operations adhere to principles of fairness and integrity[30] - The company has established policies for handling insider information to ensure timely and accurate public disclosure[97] - The company strictly prohibits any form of bribery or corruption and has implemented effective systems to prevent such activities[98] - The board reviewed the effectiveness of the risk management and internal control systems, concluding they are effective and sufficient for the fiscal year ending December 31, 2024[96]

证券研究报告 石四药集团 (2005 HK) 港股通 静待恢复性增长,口服/原料药稳放量 | 华泰研究 | | | 更新报告 | | --- | --- | --- | --- | | 2025 年 | 4 月 | 01 日│中国香港 | 化学制药 | 公司公告，24 年实现收入 57.7 亿港币(-10.7% yoy),净利润 10.6 亿港币 （-19.5%yoy）,低于 Wind 一致预测。公司收入/利润下滑,主因：1）收入端， 大输液板块销量正增长,但集采影响部分品种 ASP,叠加嗅己新一次性影响拖 累安瓿板块收入,及咖啡因价格同比下滑影响原料药板块表现；2）利润端下 滑幅度大于收入端主因年内客单价偏低的塑瓶及直立软袋占比提升，从而影 响毛利率表现。展望 25 年,考虑大输液收入规模企稳,口服制剂及原料药恢 复性增长,我们看好公司 25 年净利润 10%yoy，维持"买入"。 大输液：2024 销量正增长，看好 2025 收入规模企稳 大输液板块 24 年收入 37.3 亿港币(-7.6% yoy),主因:1)销量受益集采中标+ 新直立袋产能投放而持续增长(24 年销量+6.7% yoy)；2) 部分 ...

Core Viewpoint - The company reported a decline in revenue and profit for the fiscal year ending December 31, 2024, with a focus on improving market accessibility and product approvals despite challenging market conditions [1][2]. Group 1: Financial Performance - The company's revenue for the year was HKD 57.73 billion, a decrease of 10.67% year-on-year [1]. - Shareholders' profit was HKD 10.61 billion, down 19.53% compared to the previous year [1]. - Basic earnings per share were HKD 0.3582, with a proposed final dividend of HKD 0.095 per share [1]. Group 2: Product Approvals and Market Access - The company successfully completed the market access for 44 generic names and 56 specifications, with significant approvals in various provinces [2]. - The company participated in over a thousand bidding activities, achieving notable success in national and regional procurement initiatives [2]. - The company has 162 products listed in the national medical insurance directory, with new products successfully entering the 2024 updated directory [2]. Group 3: Business Segments Performance - The infusion and ampoule water products maintained stable performance, with total sales volume reaching 2.036 billion bottles (bags), a year-on-year increase of 6.7% [3]. - Sales revenue for infusion products was HKD 37.35 billion, a decrease of 7.6% due to market demand and pricing pressures [3]. - The oral formulation segment saw significant growth, with sales revenue reaching approximately HKD 5.02 billion, up about 4.9% year-on-year [4]. Group 4: Raw Material Drug Segment - The raw material drug segment experienced a sales revenue decline of 11.7%, totaling approximately HKD 7.85 billion [4]. - Caffeine sales volume increased by about 44% to 5,478 tons, while sales of metronidazole decreased by 43% [4]. - The company anticipates a stabilization and recovery in the raw material drug business in the coming year [4].

Financial Performance - In 2024, the company achieved a total sales revenue of approximately RMB 5.266 billion, a decrease of 9.6% year-on-year; in HKD, the revenue was about HKD 5.773 billion, down 10.7% year-on-year, with a gross profit margin of 50.4%, a decline of 5.6 percentage points [3]. - The net profit for 2024 was approximately HKD 1.061 billion, representing a year-on-year decrease of 19.5% [3]. - The company's revenue for the year ended December 31, 2024, was HKD 5,773,251, a decrease of approximately 10.7% compared to HKD 6,463,009 in 2023 [20]. - Gross profit for 2024 was HKD 2,908,262, down from HKD 3,619,639 in 2023, indicating a decline of about 19.6% [20]. - The operating profit decreased to HKD 1,343,500 in 2024 from HKD 1,638,901 in 2023, reflecting a reduction of approximately 17.9% [20]. - The total comprehensive income for the year 2024 was HKD 877,973, down from HKD 1,202,341 in 2023, indicating a decline of approximately 27% [21]. - Basic earnings per share for 2024 were HKD 0.3582, compared to HKD 0.4441 in 2023, reflecting a decrease of about 19.4% [21]. - The company's profit before tax for 2024 was HKD 1,281,603,000, a decrease of 19.1% from HKD 1,583,569,000 in 2023 [44]. - The actual tax expense for 2024 was HKD 205,995,000, down 19.0% from HKD 254,281,000 in 2023 [44]. - Profit attributable to equity holders decreased by 19.5% to HKD 1,061,150,000 for the year ending December 31, 2024, with a net profit margin dropping from 20.4% to 18.4% [68]. Dividend and Shareholder Returns - The company declared a final dividend of HKD 0.095 per share, with a total annual dividend of HKD 0.175 per share, an increase of 2.9% year-on-year [4]. - The company proposed a final dividend of HKD 0.095 per share for 2024, down from HKD 0.100 per share in 2023 [51]. - The total dividend declared for 2024 was HKD 517,844,000, slightly up from HKD 504,807,000 in 2023 [51]. - The company has adopted a dividend policy to consider paying two dividends annually, with an interim dividend of HKD 0.08 per share declared for the year ending December 31, 2024, compared to HKD 0.07 per share in 2023 [85]. Market and Product Development - The company completed 44 generic names and 56 specifications for market access approvals in 2024, with 13 generic names and 14 specifications approved in over 30 provinces [6]. - The company actively expanded its market presence through strategic partnerships and product innovation in the pharmaceutical packaging materials sector, enhancing market penetration and coverage [9]. - The company achieved an export volume of approximately 118 million bottles (bags) in 2024, representing an 11% year-on-year growth, with export sales amounting to approximately HKD 178 million, a 9% increase year-on-year [10]. - The company has submitted 131 product approval applications, including 76 for new liquid and solid formulations and 27 for raw materials, with several products being the first of their kind in the domestic market [12]. - The company has successfully passed consistency evaluations for 117 varieties and 156 specifications, enhancing its product structure and market accessibility [14]. - The company is actively developing innovative drugs, with its self-developed Class I new drug SYN045 currently undergoing Phase I clinical trials [12]. Research and Development - Research and development costs for 2024 were HKD 466,925,000, slightly decreased from HKD 471,076,000 in 2023 [40]. - The company has applied for 88 patents and was granted 51 patents in 2024, with a total of 552 patent applications and 340 granted patents to date [14]. - The company has made significant progress in the development of complex formulations, establishing technology platforms for sustained release and lipid-based formulations [13]. - Research and development costs were approximately HKD 265,969,000, a decrease of 8.2% from HKD 289,748,000 in 2023, due to savings in raw materials and other direct R&D costs [64]. Financial Position and Assets - Non-current assets increased to HKD 7,542,759 thousand in 2024 from HKD 6,842,219 thousand in 2023, representing a growth of approximately 10.3% [22]. - Current liabilities decreased significantly from HKD 2,521,440 thousand in 2023 to HKD 1,820,950 thousand in 2024, a reduction of about 27.8% [22]. - Total assets less current liabilities rose to HKD 10,782,730 thousand in 2024, up from HKD 9,444,896 thousand in 2023, indicating an increase of approximately 14.2% [22]. - Non-current liabilities increased to HKD 3,247,080 thousand in 2024, compared to HKD 2,176,204 thousand in 2023, reflecting a growth of around 49.3% [23]. - The company's total equity reached HKD 7,535,650 thousand in 2024, up from HKD 7,268,692 thousand in 2023, marking an increase of approximately 3.7% [23]. - The company's cash and cash equivalents decreased from HKD 1,615,208 thousand in 2023 to HKD 1,257,702 thousand in 2024, a decline of about 22.1% [22]. - Inventory levels increased slightly from HKD 1,086,282 thousand in 2023 to HKD 1,109,462 thousand in 2024, representing a growth of approximately 2.1% [22]. - Trade receivables rose to HKD 2,226,355 thousand in 2024 from HKD 2,177,050 thousand in 2023, an increase of about 2.3% [22]. Corporate Governance and ESG - The company has complied with the corporate governance code as per the Hong Kong Stock Exchange rules, except for the separation of the roles of Chairman and CEO, which are held by the same individual, Mr. Qu Jiguang [82]. - The company emphasizes the importance of environmental sustainability and social responsibility, integrating ESG considerations into daily operations [83]. - The company acknowledges the increasing focus of investors and stakeholders on ESG matters and aims to operate responsibly and sustainably [83]. Operational Efficiency - Sales and distribution costs significantly reduced by 25.4% to HKD 1,143,425,000, reflecting improved efficiency in sales channels and increased sales through centralized procurement [62]. - The company incurred a financial cost of HKD 126,881,000 in 2024, slightly higher than HKD 125,413,000 in 2023 [39]. - The net financial costs for the year ending December 31, 2024, increased by 2.8% to HKD 88,390,000 compared to HKD 85,942,000 in 2023 [66]. Future Outlook - The company aims to achieve a sales volume target of 2.15 billion infusion products by 2025, representing a growth of about 6% compared to 2024 [16]. - The group plans to strengthen its clinical business team and focus on the market development of several key products, including Azithromycin tablets and others, to enhance market presence [16]. - The company targets a revenue growth rate of 20% for its raw material drug segment by 2025, focusing on high-value specialty products [17]. - The group aims to obtain 98 various national approvals by 2025, including 33 for liquid formulations and 26 for solid formulations [18].

Investment Rating - The report maintains a "Buy" rating for the company with a target price of HKD 5.30 [1] Core Views - The company's 1-9M24 revenue was HKD 4.534 billion (-4.7% YoY), with a net profit of HKD 919 million (-2.8% YoY) [2] - The decline in revenue was attributed to stable growth in the large infusion sector but was offset by the impact of centralized procurement on ASP and a one-time impact from a specific product [2] - The net profit margin improved by 0.4 percentage points YoY due to optimized sales expenses [2] - The report expects the company's 2024 net profit to be HKD 1.35 billion, driven by seasonal demand in the large infusion sector and stabilized raw material prices [2] Large Infusion Sector - The large infusion sector generated HKD 2.97 billion in revenue (-1% YoY) in 1-9M24, with a 13.4% YoY increase in sales volume but a 12.7% YoY decline in ASP due to centralized procurement [3] - The sector is expected to grow steadily in 2024, with sales exceeding 2.2 billion bottles/bags, driven by seasonal demand, increased capacity utilization, and the expansion of high-margin products like peritoneal dialysis fluid [3] Raw Material Sector - The raw material sector reported HKD 598 million in revenue (-6.6% YoY) in 1-9M24, with caffeine prices stabilizing and azithromycin expected to see both volume and price increases in 2024 [4] - The ampoule sector saw a significant revenue decline (-30.5% YoY) due to a one-time impact but is expected to recover with HKD 700 million in revenue in 2024 [4] Solid Formulation Sector - The solid formulation sector achieved HKD 339 million in revenue (+5.3% YoY) in 1-9M24, with expected revenue of HKD 500 million in 2024 due to new product approvals and the deepening of the raw material/formulation integration strategy [4] Financial Forecasts and Valuation - The company's 2024/2025/2026 EPS is forecasted to be HKD 0.46/0.53/0.59, with a target price of HKD 5.30 based on a 10x PE ratio for 2025 [5] - Revenue is expected to grow from HKD 6.528 billion in 2024E to HKD 8.386 billion in 2026E, with net profit increasing from HKD 1.354 billion in 2024E to HKD 1.744 billion in 2026E [1][5] - ROE is projected to remain stable around 18.45%-18.84% from 2024E to 2026E [1]

Financial Performance - In the first half of 2024, the company achieved sales revenue of approximately RMB 3.034 billion, a year-on-year increase of about 2.4%[3] - The net profit for the same period was approximately HKD 686 million, reflecting a year-on-year growth of about 7.4%[3] - For the six months ended June 30, 2024, the total revenue was HKD 3,338,939,000, a slight increase of 0.2% compared to HKD 3,333,157,000 in the same period last year[24] - Operating profit for the six months ended June 30, 2024, was HKD 849,283,000, an increase of 7.2% from HKD 792,484,000 in the previous year, resulting in an operating profit margin of 25.4%[32] - The profit attributable to equity holders increased by 7.4% to HKD 685,737,000 for the six months ended June 30, 2024, compared to HKD 638,611,000 for the same period last year, with a net profit margin rising from 19.2% to 20.5%[35] - Basic earnings per share rose to HKD 0.2312, compared to HKD 0.2149 in the prior year, indicating a growth of approximately 10.9%[68] - Total comprehensive income for the period was HKD 630,292, significantly higher than HKD 387,537 in the same period last year, marking an increase of around 62.5%[68] Dividends and Shareholder Returns - The interim dividend declared is HKD 0.08 per share, representing a year-on-year increase of 14.3%[3] - The interim dividend declared is HKD 0.08 per share, totaling approximately HKD 237,523,000, up from HKD 0.07 per share last year[36] - The company declared an interim dividend of HKD 0.08 per ordinary share on August 28, 2024[124] Sales and Market Expansion - Sales volume of mannitol injection reached 21.07 million bottles (bags), a year-on-year increase of 70%[5] - Oral formulation sales volume reached 800.9 million pieces (tablets, bags), with a year-on-year growth of 8%[6] - The company added 32 new international customers for raw materials, expanding its customer base in Europe, America, and Asia[7] - The company aims to enhance its formulation development advantages by improving marketing management systems and expanding market share in key product categories such as infusion and oral formulations[13] - The company plans to accelerate the transformation of new products and optimize processes to enhance quality and reduce costs, targeting markets in the Americas, Europe, South Asia, and Southeast Asia for key raw materials like caffeine and azithromycin[14] - The company plans to continue expanding its market presence and investing in new product development to drive future growth[72] Product Development and Innovation - The group approved 43 new products in the first half of the year, including 29 formulations and 14 active pharmaceutical ingredients (APIs) [8] - The group reported a significant increase in the proportion of high-end complex formulations among the approved products, enhancing its innovation influence in the industry [8] - The group has completed the integrated development of linezolid, with various formulations including linezolid sodium chloride injection and linezolid dry suspension, improving market accessibility for pediatric pneumonia treatment [9] - The group has received approval for 14 specialty APIs, enhancing its coverage in the emergency drug market, with key products like isoproterenol and norepinephrine [10] - The innovative drug SYN045 for pulmonary arterial hypertension has entered Phase I clinical trials, expected to conclude by the end of 2024, showing promising safety and tolerance [10] - A total of 45 patents were filed in the first half of the year, with 30 being invention patents, reflecting the group's commitment to innovation [11] - The company is committed to maintaining a strong innovation momentum and aims to achieve breakthroughs in high-end complex formulations and innovative drugs[15] Financial Position and Cash Flow - Cash and cash equivalents slightly decreased by 3.1% to HKD 1,564,535,000 as of June 30, 2024, compared to HKD 1,615,208,000 at the end of 2023[37] - Bank borrowings increased by 7.1% to HKD 3,607,505,000 as of June 30, 2024, from HKD 3,368,141,000 at the end of 2023[37] - The capital-to-debt ratio rose to 22.0% as of June 30, 2024, up from 20.2% at the end of 2023, due to increased bank borrowings[37] - Operating cash generated for the six months ended June 30, 2024, was HKD 615,165,000, a decrease of 7% from HKD 661,515,000 in the same period of 2023[74] - Net cash generated from operating activities was HKD 322,918,000, down 30% from HKD 463,601,000 year-on-year[74] - The company reported a net cash outflow from financing activities of HKD 69,013,000, compared to HKD 24,710,000 in the previous year, indicating increased financing costs[76] Risks and Market Environment - The company has established a dedicated team to manage the risks associated with national drug procurement and has obtained more product registrations to qualify for tenders[18] - The company recognizes the importance of maintaining good relationships with suppliers and customers to achieve both short-term and long-term goals[20] - The company is actively monitoring changes in the Chinese pharmaceutical market environment and is prepared to respond to any adverse impacts[20] Corporate Governance and Compliance - The company has adopted the corporate governance code as per the listing rules and has complied with all applicable provisions during the six months ending June 30, 2024[62] - The roles of Chairman and CEO are held by Mr. Qu Jiguang, which the board believes is in the best interest of the company for effective strategy execution[62] Share Options and Equity - As of June 30, 2024, the total number of unexercised stock options under the 2012 stock option plan remains at 100,000,000, with a weighted average exercise price of HKD 4.218[44] - The company anticipates receiving proceeds of HKD 421,800,000 if all unexercised stock options as of June 30, 2024, are exercised[44] - The total number of stock options available for issuance under the 2023 stock option plan as of June 30, 2024, is 297,268,338, representing approximately 10.01% of the company's issued shares[46] - The company has a limit of 1% of the total issued shares for stock options granted to each eligible participant within any 12-month period, unless otherwise approved by shareholders[46] Legal and Regulatory Matters - The company has been found in violation of bidding terms related to the procurement of a specific injection solution, leading to a temporary suspension from national procurement eligibility for six months[124]

Investment Rating - The investment rating for the company is "Outperform the Market" [4][18]. Core Views - The company demonstrated stable performance in H1 2024, with revenue of HKD 3.339 billion (+0.2%) and net profit of HKD 686 million (+7.4%) [5][8]. - The large-volume infusion segment showed significant growth, with revenue reaching HKD 2.185 billion (+5.6%) and sales volume of 1.139 billion bags (+21.7%) [8][9]. - The company is in a phase of intensive approval for formulation varieties, which is expected to support stable growth in the future [17]. Summary by Sections Financial Performance - In H1 2024, the company achieved revenue of HKD 3.339 billion (+0.2%) and net profit of HKD 686 million (+7.4%), with a gross margin of 55.2% (-3.1pp) and a net margin of 20.5% (+1.4pp) [5][8]. - The sales expense ratio decreased to 22.7% (-4.9pp), while the management expense ratio increased slightly to 4.2% (+0.1pp) [5][8]. Business Segments - The large-volume infusion business generated revenue of HKD 2.185 billion (+5.6%), accounting for 65.4% of total revenue [8][9]. - The ampoule injection segment faced short-term pressure, with revenue declining to HKD 367 million (-19.0%) due to price reductions in collective procurement products [8][9]. - The raw material segment reported revenue of HKD 399 million (-12.1%), primarily due to low caffeine prices [8][9]. Research and Development - The company achieved significant R&D results in H1 2024, with 29 formulation varieties approved, including 18 injectable and 11 oral formulations [17]. - The innovative drug SYN-045 for pulmonary arterial hypertension has entered Phase I clinical trials, and the anti-liver fibrosis drug ADN-9 is expected to apply for Phase I trials soon [17]. Profit Forecast - The profit forecast for 2024-2026 has been adjusted, with expected revenues of HKD 65.32 billion, HKD 70.86 billion, and HKD 76.85 billion, reflecting a growth rate of 1.07%, 8.47%, and 8.46% respectively [17]. - The forecasted net profit for the same period is HKD 13.41 billion, HKD 14.98 billion, and HKD 16.51 billion, with growth rates of 1.71%, 11.69%, and 10.22% respectively [17].

Financial Performance - In the first half of 2024, the company achieved sales revenue of approximately RMB 3.034 billion, a year-on-year increase of about 2.4%[3] - The net profit for the first half of 2024 was approximately HKD 686 million, representing a year-on-year growth of about 7.4%[3] - The company declared an interim dividend of HKD 0.08 per share, an increase of 14.3% compared to the previous year[3] - The company reported a revenue of HKD 3,338,939 thousand for the six months ended June 30, 2024, compared to HKD 3,333,157 thousand in the same period of 2023, showing a slight increase[15] - Gross profit for the same period was HKD 1,843,455 thousand, down from HKD 1,944,751 thousand year-on-year, indicating a decrease of approximately 5.2%[15] - Operating profit increased to HKD 849,283 thousand from HKD 792,484 thousand, reflecting a growth of about 7.2%[15] - The company reported a net profit of HKD 697,786 thousand for the first half of 2024, compared to HKD 649,505 thousand in the same period of 2023, representing an increase of approximately 7.4%[15] - The total comprehensive income attributable to equity holders of the company for the period was HKD 620,566,000, a significant increase of 60.1% from HKD 387,382,000 in the previous year[17] - Basic earnings per share for the period was HKD 0.2312, up from HKD 0.2149, reflecting a growth of 7.3%[17] Sales and Revenue Breakdown - The intravenous infusion and other products generated sales revenue of HKD 3.244 billion, accounting for 97.2% of total revenue, with a slight increase from the previous year[4] - The sales volume of intravenous products reached 1.139 billion bottles (bags), a year-on-year increase of 21.7%[5] - The sales revenue from the ampoule injection business was HKD 367 million, a year-on-year decrease of 19.1%, despite a sales volume increase of 27%[6] - Oral formulations achieved sales of 80.09 million tablets (pieces, bags), a year-on-year increase of 8%, with notable growth in specific products like cefdinir capsules, which saw a 33.7% increase in sales volume[6] - The therapeutic infusion products achieved a sales volume of 149 million bottles (bags), a year-on-year increase of 34%[5] - Revenue from pharmaceutical sales was HKD 3,226,372,000, showing a marginal increase from HKD 3,225,011,000 year-on-year[23] - Revenue from sales in China was HKD 3,002,085,000, a slight decrease from HKD 3,013,522,000 in the previous year[23] Product Development and Innovation - The group received approvals for 43 new products, including 29 formulations and 14 APIs, with a significant increase in high-end complex formulations[9] - The group has completed the development of 94 products with 126 specifications that have passed or are deemed to have passed consistency evaluation, enhancing its market competitiveness[10] - The group’s new product development includes 14 approved specialty APIs, strengthening its market presence in emergency drug raw materials[10] - The group’s new product highlights include pen-type injectors and high-permeability cell culture bags, contributing to a sales increase of 4.9% in the pharmaceutical packaging business[8] - The company plans to apply for 52 new products for market approval in the second half of 2024, including 24 liquid formulations and 16 solid formulations[14] - The company aims to achieve a total of 28 approvals for formulations and raw materials in the second half of 2024, with 14 liquid formulations and 9 oral formulations included[14] Market Strategy and Operations - The company participated in over 500 national and provincial drug procurement events, significantly enhancing market share for key products[5] - The company is focusing on product innovation and market expansion, optimizing its product structure and marketing channels to enhance operational efficiency[4] - The company is focusing on high-value formulations and new product market development to increase the contribution rate of new products and expand market share[13] - The company has established a dedicated team to manage the risks associated with national centralized procurement and other forms of drug bidding[45] - The company has achieved more product registrations that have passed or are deemed to have passed consistency evaluations, qualifying for national centralized procurement[45] Financial Position and Assets - Non-current assets increased to HKD 7,275,706,000 as of June 30, 2024, compared to HKD 6,842,219,000 at the end of 2023, marking a rise of 6.3%[18] - Current assets rose to HKD 5,272,975,000, up from HKD 5,124,117,000, indicating a growth of 2.9%[18] - The net current assets increased to HKD 3,267,488,000, compared to HKD 2,602,677,000, showing a significant increase of 25.5%[18] - Total assets less current liabilities amounted to HKD 10,543,194,000, up from HKD 9,444,896,000, reflecting a growth of 11.6%[18] - The company’s total assets as of June 30, 2024, were HKD 12,548,681,000, compared to HKD 11,966,336,000 at the end of 2023[26] Costs and Expenses - Total employee costs increased to HKD 373,921,000 from HKD 341,362,000, marking an increase of about 10%[28] - Research and development costs amounted to HKD 247,094,000, slightly higher than HKD 243,021,000 in the previous year, with capitalized costs of HKD 110,578,000[29] - Sales and distribution costs decreased by 17.7% to HKD 758,055,000, attributed to optimized sales channels and increased procurement sales[56] - Research and development costs slightly decreased by 1.6% to HKD 136,516,000, including R&D staff salaries of approximately HKD 56,721,000[58] Shareholder Information - The interim dividend declared for the six months ended June 30, 2024, was HKD 237,523,000, an increase from HKD 207,903,000 for the same period in 2023[39] - The company did not repurchase any ordinary shares through the stock exchange for the six months ended June 30, 2024, but repurchased 2,640,000 shares for approximately HKD 13,672,000 in the previous period[41] - As of June 30, 2024, there were no stock options granted or exercised, with a total of 100,000,000 options remaining unexercised[42] - The company has not purchased any shares under the restricted share award plan during the reporting period, with 3,300,000 shares repurchased and recorded as treasury shares[43] Regulatory and Compliance - The effective tax rate for the six months ended June 30, 2024, was approximately 15% for high-tech enterprises, compared to 25% for other subsidiaries[31] - The company has not recognized deferred tax liabilities for undistributed profits amounting to HKD 7,441,963,000 as it does not intend to distribute these profits in the foreseeable future[31] - The company has not applied temporary exceptions under the OECD Pillar Two rules, pending the enactment of relevant legislation[32] Miscellaneous - The company primarily engages in the research, development, manufacturing, and sales of pharmaceutical products, including intravenous infusion and ampoule injection products[44] - The group had no significant acquisitions or disposals of subsidiaries or associates during the six months ended June 30, 2024[68] - The group maintained a sufficient public float of over 25% of its issued share capital as of August 28, 2024[69] - The group has not utilized any hedging financial instruments, as it does not anticipate significant adverse effects from exchange rate fluctuations[66] - The company will suspend the registration of share transfers from September 16, 2024, to September 20, 2024, inclusive[75] - The interim results announcement will be published on the company's website and the Hong Kong Stock Exchange website[76] - The interim report will include all information required by the listing rules and will be sent to shareholders later[76]

Financial Performance - In 2023, the company achieved a sales revenue of approximately RMB 5.824 billion, representing a year-on-year growth of about 4.9%[6] - The sales revenue in Hong Kong dollars was approximately HKD 6.463 billion, with a year-on-year growth of about 0.5%[6] - The gross profit margin for the year was 56.0%, an increase of 0.6 percentage points compared to the previous year[6] - The net profit reached approximately HKD 1.319 billion, reflecting a year-on-year increase of about 17.4%[6] - The company plans to distribute a final dividend of HKD 0.10 per share, resulting in a total annual dividend of HKD 0.17 per share, a year-on-year increase of approximately 21.4%[6] - For the fiscal year ending December 31, 2023, the total revenue of the group was HKD 6,463,009,000, representing a year-on-year increase of 0.5% from HKD 6,434,025,000 in 2022[28] - The revenue from intravenous infusion products was HKD 4,040,743,000, a 15.1% increase compared to HKD 3,510,342,000 in 2022, primarily driven by increased sales volume[30] - The revenue from oral formulations increased by 38.2% to HKD 478,195,000, driven by new products such as Buprenorphine tablets and Azithromycin tablets[31] - The group reported a 6% decline in sales revenue for its pharmaceutical packaging materials, totaling approximately HKD 162 million, while maintaining stable production and expanding market share[12] Product Development and Innovation - The group secured 86 production approvals in 2023, including 72 formulations and 14 raw materials, with significant advancements in areas such as anti-infection and rare disease medications[14] - The group is advancing its innovative drug research, with NP-01 tablets undergoing Phase I clinical trials and SYN-045 receiving approval for Phase I trials in January 2024[15] - The company achieved breakthroughs in complex formulation drug research, with 9 consistency evaluation approvals obtained in 2023, totaling 86 product approvals, including 5 products that were the first in the industry to pass consistency evaluation[17] - The company is focusing on the development of specialty generics and high-end complex formulations, aiming to achieve breakthroughs in these areas[21] - The company plans to obtain 82 national production approvals in 2024, including 38 liquid formulation products, 23 solid formulation products, and 21 raw materials, enhancing its innovation capabilities[21] Market Expansion and Sales Growth - In 2023, the sales revenue from national procurement products was approximately HKD 936 million, showing a year-on-year growth of about 70%[8] - The company is leveraging national procurement opportunities to expand product market accessibility and drive sales growth[8] - The group achieved a cumulative sales volume of approximately 1.91 billion bottles (bags) in the infusion business in 2023, representing a year-on-year growth of 21%, with sales revenue of approximately HKD 4.04 billion, a 15% increase year-on-year[10] - The sales volume of key therapeutic products reached approximately 362 million bottles (bags), an increase of 25% compared to last year, with significant growth in specific products such as the sales of Ammonium Bromide Sodium Chloride Injection increasing by approximately 215%[10] Cost Management and Profitability - The group's cash and cash equivalents slightly decreased to HKD 1,615,208,000 from HKD 1,667,547,000, while bank borrowings increased to HKD 3,368,141,000 from HKD 3,207,648,000[45] - The overall gross profit margin increased by 0.6 percentage points to 56.0%, with total gross profit recorded at HKD 3,619,639,000 compared to HKD 3,567,586,000 in 2022[34] - Sales and distribution costs decreased by 7.7% to HKD 1,532,591,000, with advertising and promotional expenses dropping to HKD 1,017,254,000 from HKD 1,121,283,000[36] - General and administrative expenses increased by 8.2% to HKD 308,321,000, driven by higher administrative staff salaries and utility costs[38] - Research and development costs rose by 11.8% to HKD 289,748,000, reflecting increased investment in new product development and innovation[39] Corporate Governance - The company has maintained compliance with the corporate governance code as per the Hong Kong Stock Exchange, except for the separation of roles between the chairman and CEO[57] - The board consists of four executive directors and three independent non-executive directors, ensuring a balanced governance structure[58] - The company has established clear guidelines for management responsibilities and reporting to the board[59] - The board has delegated various responsibilities to its committees, including the nomination, remuneration, and audit committees[59] - The company has adopted a board diversity policy aiming to enhance board effectiveness by considering factors such as gender, age, cultural and educational background, race, professional experience, skills, knowledge, and tenure[71] Environmental, Social, and Governance (ESG) Initiatives - The environmental, social, and governance (ESG) report outlines the company's commitment to sustainable development and responsible business practices[98] - The company recognizes the growing importance of ESG issues among investors and stakeholders[98] - The company aims to reduce pollutant emissions with an average reduction in emission density from 2023 to 2032 compared to 2022, with ongoing efforts to adopt new equipment and optimize production processes[110] - The company has implemented measures to comply with GMP standards and relevant environmental laws, ensuring that pollution prevention and ecological protection capabilities are enhanced[112] - The company promotes a "green" pharmaceutical concept, emphasizing environmental protection and resource utilization in its production processes[111] Employee and Labor Practices - As of December 31, 2023, the total employee count increased to approximately 5,600, up from 5,000 in 2022, reflecting a growth of 12%[47] - The total salary cost for the year ending December 31, 2023, was approximately HKD 717,031,000, representing a 7.3% increase from HKD 668,407,000 in 2022[47] - The company adheres to strict compliance with labor laws and regulations, ensuring employee rights and safety[127] - The health and safety committee has implemented various training and safety measures to enhance workplace safety[128] - The employee turnover rate in 2023 was 16.5%, a decrease from 17.0% in 2022[127] Risk Management - The company has established a new risk control model for ensuring drug quality and safety, recognized as a national quality benchmark in 2023[14] - The group has established a dedicated team to manage risks related to centralized procurement and has obtained more product registrations that meet consistency evaluation standards[25] - The board of directors confirmed the effectiveness and adequacy of the risk management and internal control systems as of December 31, 2023[86] - The company has implemented sufficient internal control procedures for managing related party transactions[180] Shareholder and Investor Relations - The company has adopted a dividend policy to consider paying two dividends annually, with a stable dividend payout ratio based on audited net profit attributable to shareholders[95] - The company emphasizes the importance of effective communication with investors and stakeholders through various channels, including annual general meetings and reports[96] - The proposed final dividend record date is set for May 22, 2024, with expected payment around June 4, 2024[188] - The company has maintained a public float exceeding 25% of its issued share capital as of March 27, 2024[184]