Core Viewpoint - Tonghua Dongbao (600867.SH), a major domestic insulin manufacturer, has significantly revised its 2024 annual performance forecast, indicating a substantial shift from profit to loss due to various factors including price reductions from a new round of insulin procurement and legal liabilities [1][2][3][4] Financial Performance Summary - The company now expects a net profit attributable to shareholders of approximately -42.72 million yuan for 2024, a decrease of about 1.211 billion yuan or 103.66% year-on-year [1] - The forecast for net profit excluding non-recurring gains and losses is now -9.1954 million yuan, down approximately 1.177 billion yuan or 100.79% compared to the previous year [1] - In January 2024, the initial forecast estimated a profit of 40.53 million yuan, which would have represented a decrease of about 1.127 billion yuan or 96.53% year-on-year [1] Operational Adjustments - The decline in net profit is attributed to the impact of a new insulin procurement policy, which led to price reductions and inventory adjustments by commercial clients, resulting in decreased sales revenue [1] - The company has terminated the clinical research and development of the THDB0207 injection project, which is expected to reduce profits by 270 million yuan in 2024 [2] Legal and Financial Liabilities - The company is required to pay 61.31 million yuan in damages to Ganli Pharmaceutical due to a trademark infringement lawsuit, which was previously estimated at 30 million yuan [2] - This legal ruling necessitated an adjustment in the company's financial liabilities and losses, impacting the overall profit forecast [2] Additional Financial Adjustments - The second revision of the performance forecast indicates a shift from profit to loss for both net profit attributable to shareholders and net profit excluding non-recurring gains and losses [3] - The company plans to transfer three R&D projects from its subsidiaries, which is expected to affect deferred tax assets and reduce net profit by 52.74 million yuan [3] - The previously recognized loss of 254 million yuan related to the THDB0207 project has been adjusted to be classified as a regular loss rather than a non-recurring one, impacting the net profit by 215 million yuan [3] Market Reaction - The repeated adjustments to the performance forecast within a short span of three months have raised concerns and skepticism in the market regarding the company's financial stability and operational transparency [4]

Core Viewpoint - Tonghua Dongbao, one of the domestic insulin "duopoly," has revised its performance forecast, now expecting a net loss of approximately 42.72 million yuan for 2024, marking a significant decline of 103.66% year-on-year [1][4][6]. Financial Performance - The company anticipates a net profit attributable to shareholders of approximately -42.72 million yuan for 2024, a decrease of about 12.11 billion yuan compared to the previous year [4]. - The expected net profit after deducting non-recurring gains and losses is projected to be -9.19 million yuan, down approximately 11.77 billion yuan year-on-year [4]. - This marks the first annual loss for Tonghua Dongbao since 2005, following a profit exceeding 1.1 billion yuan in 2023 [2]. Reasons for Performance Revision - The frequent revisions in performance forecasts are attributed to multiple factors, including the termination of R&D projects, losses from infringement lawsuits, and asset transfers [1][5]. - The company was ordered to pay 61.31 million yuan due to a trademark infringement lawsuit, which has further impacted its profitability [9]. - A significant factor in the loss is the impact of a new round of insulin centralized procurement, leading to price reductions and inventory adjustments by commercial clients, which affected sales revenue [5][10]. R&D and Competitive Position - Tonghua Dongbao's R&D investment has been lower compared to its competitor, Ganli Pharmaceutical, with R&D expenditures from 2021 to 2023 being approximately 3.80 billion yuan, 4.01 billion yuan, and 4.20 billion yuan, representing 11.63%, 14.43%, and 13.66% of revenue, respectively [10]. - In contrast, Ganli Pharmaceutical's R&D investment as a percentage of revenue has consistently exceeded 20% [10]. Shareholder Concerns - The high pledge rate of the major shareholder is a point of concern, with the pledge rate reaching 95.20% [3][12].

Investment Rating - The report assigns a "Buy" rating for the company, marking the first coverage of the stock [6]. Core Views - The company is experiencing robust growth in the domestic insulin market, with both volume and price increasing due to successful participation in centralized procurement [5][6]. - The company is actively advancing its innovative research and development pipeline, with promising data from its GLP-1 receptor agonist GZR18 and long-acting insulin GZR4 [5][6]. - The company is expanding its international presence, with increasing overseas sales and successful entry into emerging markets [5][6]. Summary by Sections 1. Market Position and Growth - The company is a leading player in the diabetes market, with a comprehensive insulin product pipeline and significant market share growth due to centralized procurement [9][12]. - In 2024, the company achieved a revenue of 22.45 billion yuan, a year-on-year increase of 17.81%, and a net profit of 5.07 billion yuan, up 90.36% [5][12]. 2. Research and Development - The company has a complete insulin research pipeline, including both marketed products and innovative drugs in development, such as GZR18 and GZR4 [34][39]. - GZR18 has shown significant weight loss results in clinical trials, indicating its potential as a best-in-class (BIC) treatment [36][37]. 3. International Expansion - The company is actively pursuing international markets, with successful product registrations and sales in regions such as Latin America and Asia-Pacific [43][44]. - The company’s overseas revenue reached 2.27 billion yuan in 2023, reflecting a year-on-year growth of 13.31% [44]. 4. Financial Projections and Valuation - The company is projected to achieve net profits of 6.52 billion yuan in 2024, 11.50 billion yuan in 2025, and 14.97 billion yuan in 2026, with corresponding P/E ratios of 40, 23, and 17 [6][12]. - The company's P/E valuation for 2025 is estimated at 23 times, which is lower than the average of comparable companies at 32 times [6].