Core Viewpoint - The animal health sector is gradually expanding, with a focus on a single product strategy that enhances profitability and accelerates global integration [1] Group 1: Financial Performance - The company maintains a "Buy" rating, projecting revenue of 3.026 billion yuan (+4.63%) and net profit of 456 million yuan (+12.60%) for H1 2025 [2] - For Q2 2025, the company expects quarterly revenue of 1.586 billion yuan (+2.10%) and net profit of 241 million yuan (+16.87%) [2] - EPS forecasts for 2025-2027 are set at 1.67, 2.01, and 2.36 yuan respectively, with a target price adjustment to 31.73 yuan (previously 27.59 yuan) based on comparable company valuations [2] Group 2: Animal Health Sector Growth - The animal health segment reported revenue of 1.259 billion yuan in H1 2025, accounting for 42% of total revenue [3] - The production capacity utilization rate for florfenicol is increasing quarterly, with sales expected to exceed 3,000 tons in 2024, alongside FDA certification and registrations in over 30 European countries [3] - Sales of doxycycline are robust, having received EU CEP certification and passed audits from South Korea's MFDS, with sales reaching over 50 countries and more than 200 customers [3] Group 3: Profitability Improvement - The gross margin for H1 2025 is reported at 26.85% (+0.25 percentage points), with a net profit margin of 15.05% (+1.39 percentage points) [4] - For Q2 2025, the gross margin is 27.23% (+1.36 percentage points) and the net profit margin is 15.17% (+2.52 percentage points), indicating improved profitability [4] - The company aims to achieve a leading position with 30 scaled products globally, regular production of 80 products, and production capacity for 120 products, which is expected to support steady growth [4] Group 4: Catalysts - There is an expectation for terminal demand for products to exceed forecasts, along with a recovery in prices for animal health products [5]

Investment Rating - The investment rating for the pharmaceutical and biotechnology industry is "Positive" (maintained) [1] Core Views - The report highlights that the operating turning point for Guobang Pharmaceutical is evident, with the animal health business expected to contribute significantly to performance elasticity [5][13] - The pharmaceutical raw materials sector is maintaining a high level of prosperity due to upstream intermediate supply constraints and sustained post-pandemic demand [6][27] - The animal health raw materials sector is nearing the end of a market clearing phase, with prices for strong antibiotics showing a continuous recovery [7][42] Summary by Sections Guobang Pharmaceutical - Guobang Pharmaceutical has shown steady revenue growth, increasing from 4.206 billion in 2020 to 5.891 billion in 2024, with profits stabilizing around 800 million [13][14] - The gross margin for animal health raw materials has decreased significantly, reaching a historical low of 18.9% in 2024, while the gross margin for pharmaceutical raw materials has improved to 28.4% [17][19] - The company is experiencing a recovery in profitability, with gross margin, net margin, and ROE showing signs of improvement in 2024 [19][25] Pharmaceutical Raw Materials - The pharmaceutical raw materials segment, particularly macrolide antibiotics, is expected to maintain high profitability due to limited upstream supply and stable demand growth [6][27] - Key products include Azithromycin, Clarithromycin, and Roxithromycin, with the core raw material being thiocyanate erythromycin, which is crucial for production [27][30] Animal Health Raw Materials - The animal health raw materials market is stabilizing, with strong antibiotic prices recovering after a prolonged decline [7][42] - The market for strong antibiotics has shifted from over ten competitors to about three major players, with Guobang Pharmaceutical holding a significant market share [7][49] - The price of Florfenicol has dropped significantly from 500 RMB/kg in 2022 to around 180 RMB/kg in 2024, but is now showing signs of stabilization [7][50] Market Performance - In May, the pharmaceutical and biotechnology sector rose by 1.78%, outperforming the CSI 300 index by 1.96 percentage points, ranking first among 31 sub-industries [55][60] - The other biopharmaceutical sub-sector showed the highest growth, while the hospital sector experienced the largest decline [60][61]

Core Viewpoint - The company is experiencing a revitalization with strong performance in antibiotic production and innovative drug development, particularly in the insulin and animal health sectors [1][2][3][4]. Antibiotic and Insulin Business - The company has a leading position in the antibiotic market, focusing on a full industrial chain including key products like 6-APA and amoxicillin, with a stable long-term outlook despite short-term price fluctuations [1]. - The company successfully participated in the national procurement of insulin, achieving A-class bids for all six products, which is expected to enhance market share as the demand for third-generation insulin products increases [1][2]. - The antibiotic procurement risks have been largely mitigated, with most major products already completed in the procurement process [1]. Innovative Drug Development - UBT251, a GLP-1/GIP/GCG tri-receptor agonist, has shown promising results in Phase I clinical trials, leading to a significant partnership with Novo Nordisk, including an upfront payment of $200 million and potential milestone payments of up to $1.8 billion [1][2]. - The company is also advancing other innovative treatments, including a small molecule RASP inhibitor for dry eye syndrome and a JAK1 inhibitor for atopic dermatitis, both in clinical trials [1]. Financial Performance and Projections - In 2024, the company reported revenues of 137.6 billion yuan, with a slight year-on-year growth of 0.1%, driven by a 14.8% increase in intermediate revenue [2][3]. - The company anticipates revenue fluctuations in the coming years, projecting revenues of 144.0 billion, 130.0 billion, and 133.9 billion yuan for 2025-2027, with corresponding profit changes [4]. - The company plans to increase its dividend payout ratio to 38.3%, reflecting a commitment to returning value to shareholders [3]. Valuation and Market Outlook - The target price for the company's stock is set at 21.9 HKD, indicating a potential upside of 62.2% from the current price, based on a DCF model with a WACC of 12% [2][4]. - The company’s valuation includes 142 billion HKD for its intermediate and raw material business, and 223 billion HKD for its formulation business, alongside 34 billion HKD in net cash [4][5].