Incident: The company released its 2022 annual report. The company achieved revenue of 534 million yuan in 2022, an increase of 50.6% over the previous year, gross profit was 392 million yuan, an increase of 58.3% over the previous year, gross margin increased 3.59 pct to 73.38%, and cash and cash equivalents by the end of 2022 were 627 million yuan. The performance fell slightly short of expectations.

The main business blossomed more and maintained a strong growth trend: in 2022, 1) gene editing business revenue of 61 million yuan (+19.41%, year-on-year increase, same below), accounting for 11.44% of total revenue, gross margin of 42.65%; 2) Model animal sales revenue of 169 million yuan (+57.43%) of total revenue, accounting for 31.72% of total revenue and gross margin of 79.70%; 3) Preclinical pharmacological efficacy evaluation sales revenue was 176 million yuan (+66.72%), accounting for 32.70.07 percent of total revenue, gross margin of 70.07 percent %; 4) Antibody development business revenue was 127 million yuan (+43.20%), accounting for 23.77% of total revenue, and gross margin of 80.30%.

“Nano-100” helps the discovery of new drugs, and “Nano 100” relays battery life: the company focuses on drug development from 0 to 1. Based on the company's world-leading all-human antibody development platform, renMice, the company launched the Universal Rat Plan in 2020. The plan is expected to be completed in Q3 2023. The company will establish a library of 400-500,000 whole-human antibody sequences covering more than 1,000 innovative targets, thus achieving more antibody molecules/sequence transfers or authorized cooperation. In 2020-2022, the company has already transferred antibody molecules to foreign countries /The series is 6/11/17, respectively. Furthermore, based on the company's full-human nanoantibody mouse RenNano, the company announced the Nano 100 plan in February 2023 to develop whole-person therapeutic nanoantibodies targeting 100+ targets. Compared with traditional antibodies, nano-antibodies have a small molecular weight, simple structure, good stability, and are easy to produce and engineer, and can be widely used to construct various drug forms such as cell therapy, dual antibodies, multiple antibodies, and antibody-conjugated drugs/nuclides.

Pre-clinical CRO service capabilities continue to improve, and overseas expansion continues to advance: the company's pre-clinical CRO service capabilities continue to improve, has established nearly 3,000 unique gene-edited animal/cell line models, has 3 AAALAC-qualified animal room facilities, covers an area of about 55,000 square meters, and supplies hundreds of thousands of gene-edited mice a year. The company is also actively developing overseas business. In 2022, the company established a German subsidiary in Europe and expanded the laboratory space of the Boston subsidiary in the US. The company's overseas revenue accounted for 46.10% in 2022, an increase of 7.87 pct over 2021.

Profit forecast and investment rating: Due to the impact of the company's business development in 2022 due to the impact of the pandemic and the high volatility of external licensing of antibody drugs, we lowered our 2023-2024 revenue from the previous $840/1,107 million to $745/1,009 million, and expect 2025 revenue to be 1,357 million yuan. Consider the company's development of scarce targets for domestic antibody drugs, which have high growth potential and maintain a “buy” rating.

Risk warning: New drug development falls short of expected risks, industry competition increases risks, exchange profit and loss risks