Description of the event

The company published its 2022 report and the report for the first quarter of 2023. Revenue for the full year of 2022 was 1,659 million yuan, an increase of 42.12% over the previous year, and net profit of the mother was 338 million yuan, an increase of 19.85% over the previous year. The first quarter of 2023 achieved revenue of 451 million yuan, an increase of 26.80% over the previous year, and net profit of the mother was 102 million yuan, an increase of 31.58% over the previous year.

Incident comments

The impact of the epidemic+park construction and personnel investment has put pressure on profits throughout the year. Affected by the epidemic, the external market environment was complex and changeable, and the company's business activities such as business development, project implementation and project delivery have also been affected to varying degrees. It is mainly reflected in: 1) During the implementation of the epidemic control policy in Shanghai in 22Q2, the arrival rate of the company's R&D personnel was only about 70% to 80%, and the company's additional payments for maintenance and operation increased dramatically; 2) The 22Q4 epidemic control policy was optimized, and the company's employees, customers and suppliers all experienced a period of concentrated infections, affecting project implementation and delivery. At the same time, 22H2 began investing in the Hangzhou subsidiary of Medici. The business is still in the early stages of investment, which has a certain impact on the company's short-term profits. Furthermore, it is actively promoting the construction of the Shanghai Experimental Park, which has led to an increase in related costs.

Profit margins recovered in 23Q1, and GLP qualified production capacity expanded. With the gradual elimination of the impact of the epidemic and the introduction of new Hangzhou subsidiary projects, the overall gross margin of the 23Q1 company quickly recovered to 43.54%, and the net interest rate returned to the mother reached 22.50%, rising to a historically high level. On April 20, the wholly-owned subsidiary MediShipua's new experimental facility (Nanhui Park) obtained the National Drug Administration (NMPA) drug GLP certification, and added two GLP certification approvals for the reproductive toxicity test (Sichuan section) carcinogenicity test. At the same time, it successfully passed the three-year regular review of the NMPA drug GLP. Since then, the Medici GLP laboratory area has increased from 11,000 square meters to 29,000 square meters.

Refinancing guarantees medium- to long-term production capacity supply, and pre-clinical integrated service capacity deepens. Medici is the leading preclinical integrated CRO in China. Despite various external factors throughout the year, the company achieved rapid growth in new orders. The amount of new orders signed in 2022 reached 3.458 billion yuan, an increase of 41.01% over the previous year. In order to establish a more comprehensive and efficient drug development service system and effectively improve its ability to undertake drug discovery projects, the company initiated a refinancing project to issue A-shares to specific targets in early 2022. It plans to raise no more than 2.16 billion yuan in capital. At present, the main structure of the fund-raising project “Laboratory Expansion Project for Drug Discovery and Pharmaceutical Research and Application Platform” was fully capped in December 2022, and construction of the “Medi Northwest Shanghai Biomedical R&D Innovation Industry Base Project” has officially begun.

The company's net profit from 2023-2025 is estimated to be 494 million yuan, 698 million yuan, and 952 million yuan. The current stock price corresponding to PE is 28X, 20×, and 14X respectively. Maintain a “buy” rating.

Risk warning

1. The popularity of domestic pharmaceutical research and development falls short of expectations;

2. The company's new production capacity fell short of expectations.