Investment Rating - The report maintains an "Outperform" rating for China Medical System Holdings (867 HK) with a target price of HKD 9.96 per share, up 0.6% from the previous target of HKD 9.90 [8][10] Core Views - The impact of centralized procurement (VBP) has largely been cleared, and future price reductions for VBP products are expected to be limited [4] - The company is transitioning into a growth phase driven by exclusive and innovative products, with steady progress in its R&D pipeline [5] - The aesthetic medicine, ophthalmology, and Southeast Asia businesses are gradually being established and are expected to contribute incremental growth next year [7] Financial Performance - Revenue for H1 2024 was RMB 4.29 billion, a year-over-year decrease of 22.6%, but a sequential increase of 8.9% [3] - Gross margin was 62.7%, down 1.7 percentage points year-over-year, with a sequential decrease of 0.5 percentage points [3] - Net profit was RMB 900 million, down 52.8% year-over-year, but up 92.8% sequentially [3] - R&D expenditure reached RMB 620 million, up 160.2% year-over-year, accounting for 14.5% of revenue [3] Business Segments - Cardio-cerebrovascular segment revenue was RMB 1.52 billion, down 28.8% year-over-year [3] - Gastroenterology/autoimmune segment revenue was RMB 1.35 billion, down 25.0% year-over-year [3] - Ophthalmology segment revenue rose to RMB 300 million, up 23.9% year-over-year [3] - Dermatology and aesthetics segment revenue was RMB 280 million, up 11.9% year-over-year [3] Centralized Procurement Impact - Revenue from three VBP products (Dailixin, Boyiding, and Yousifu) was RMB 1.23 billion, down 49.2% year-over-year, meeting the company's guidance of a 50% sales retention rate [4] - The negative impact of VBP on these products has been largely absorbed, with Yousifu expected to face a further 5% price reduction in H2 2024 [4] Innovation and R&D - Non-VBP exclusive and innovative products accounted for 56.1% of total drug sales revenue, with combined sales of RMB 2.4 billion in H1 2024 [5] - The company has five approved innovative drugs covering six indications, with two new drugs approved in 2024 [5] - Approximately 10 innovative drugs are in clinical development in China, with Desidustat Tablets under CDE review and Ruxolitinib Cream approved for vitiligo in Macau [5] Aesthetic Medicine and Ophthalmology - Tildrakizumab Solution for Injection was approved in China in May 2023 for moderate to severe plaque psoriasis, with potential to capture market share from Cosentyx [7] - Ophthalmology products, including Esculin and Digitalisglycosides Eye Drops and the EyeOP1 Glaucoma Treatment Device, achieved sales of RMB 300 million in H1 2024 [7] Southeast Asia Business - Ruxolitinib Cream is expected to launch in Southeast Asia in H2 2025 [7] - A collaboration with Junshi Biosciences was established in March 2024 to commercialize Toripalimab in Southeast Asia, with sales expected to begin in H2 2025 [7] Earnings Forecast and Valuation - Revenue forecasts for 2024-2025 were adjusted to RMB 8.26 billion and RMB 9.19 billion, respectively, representing year-over-year increases of 3.1% and 11.2% [8] - Net profit attributable to the parent company for 2024-2025 was adjusted to RMB 1.87 billion and RMB 2.07 billion, respectively [8] - The company was assigned a 13x PE ratio for 2024, based on comparable companies such as Huadong Medicine (16x PE), Sino Biopharmaceutical (18x PE), and CSPC Pharmaceutical Group (11x PE) [8]
康哲药业2024H1点评：集采影响基本出清，创新转型稳步推进