As a model animal leader, the company has steady development and promising growth

Nanmo Biology has been deeply involved in the field of model animals for 20 years, mainly engaged in genetically-modified model animals and model biotechnology services. The genetically modified animal models produced by the company mainly refer to genetically modified mouse models. As a leading company on the racetrack, revenue is steady: the company's revenue in 2020 was 196 million yuan, an increase of 26.74% over the previous year, and a compound growth rate of 34.57% from 2014-2020. Net profit has fluctuated, but profitability continues to increase: in 2020, the company's net profit from parent to mother was 45 million yuan, up 91.64% year on year, the compound growth rate from 2014-2020 was 28.49%, and the compound growth rate for 2018-2020 was 73.21%. Due to the increase in management expenses brought about by the company's implementation of equity incentives in 2017, net profit was negative. The order volume showed a rapid growth trend: in 2020, 7,226 orders were placed, 2021H1 orders were 5,309, and the order growth rate was also increasing rapidly.

Standardized model business with strong growth potential: In the first half of 2021, the largest share of revenue for each segment was the standardized model, accounting for 32.59%, followed by model breeding (26.87%) and customized models (14.68%).

The gene editing technology system is perfect, and its core business market share is outstanding. Nanmo Biotech has four core technologies developed independently, including gene editing technology based on the CRISPR/Cas system, ES cell targeting technology, gene expression regulation technology, and assisted reproduction technology. Currently, the company has a total of 14 authorized invention patents. Among them, there are 13 domestic authorized patents and 1 overseas authorized patent. The company integrated finished mouse models accumulated over many years of research and development and launched the Yogis Mouse Resource Library in 2021. Up to now, the library has more than 6,000 standardized models. Compared with traditional customized models, the in-stock standardized model can shorten delivery time by more than 1 times. Compared with leading companies in the same industry, Nanmo Biotech is in a leading position in the number of models it owns. The company ranked second and first in the domestic market share of customized models and breeding and breeding services in 2019, respectively.

The model animal race track is very popular, and the domestic market space is vast

Model biology is an industry that first moved out of laboratories. Currently, it has developed into two major directions: scientific research services and new drug research and development, corresponding to research customers and industrial customers, covering the field of life science and biomedicine. In the field of life sciences, as investment in basic research increases, the amount of animal models used continues to increase and the market size grows. In the field of biomedicine, innovative drug research and development and the booming CRO industry have led to the explosion of demand for upstream model animals. The demand potential of industrial customers is outstanding, providing a good opportunity for the development of the industry. The global market is growing steadily. The market size of genetically modified animal models was about $10 billion in 2019, the CAGR was about 9.6% in 2016-2019, and is expected to increase to 16.6 billion US dollars by 2025. The market space in China is vast. The size of the genetically modified animal model market grew from US$582 million in 2016 to US$733 million in 2019, with a compound annual growth rate of 8.0%, and is expected to increase to US$1.21 billion by 2025.

The company's strategy is clear and development can be expected

In the future, the company will continue to increase investment in R&D and innovation, extend the upstream and downstream markets of drug research and development, and develop industrial customers. Currently, the company's share of the industrial customer market continues to rise. In particular, demand from CRO companies and innovative pharmaceutical companies is expected to become a new driving force for growth. In addition, the company also has plans to expand the layout of overseas markets. In the current context of a low base and high growth rate of foreign revenue (the share of revenue has increased from 1.65% in 2018 to 7.14% in 2021H1), the overseas market will also become a new incremental sector.

Investment advice

We expect the company's revenue from 2021 to 2023 to be 272/367/481 million yuan; a year-on-year growth rate of 38.84%/34.70%/31.15%; net profit of 0.59/0.84/116 million yuan; net profit growth rate of 32.85%/42.02%/37.96%; corresponding EPS from 2021 to 2023 is 0.76/1.08/1.49 yuan/share; the corresponding valuation is 76X/53X/39X. Considering the booming development of new domestic drug research and development, the continued high demand for upstream model animals, the company's leading layout in the field of model animals, and growth expectations in overseas markets, we covered it for the first time and gave it a “buy” rating.

Risk Reminder

Performance growth falls short of expectations; industry segmentation market space is small, and future growth falls short of expectations; iterative risk of upgrading general gene editing technology; risk of laboratory animal management.