Incident: The company released its 2022 annual report. It achieved revenue of 290 million yuan in 2022, an increase of 14.3% over the previous year, net profit of 0.4 billion yuan, a year-on-year decrease of 28.1%, after deducting net profit of 0.3 billion yuan from the previous year, a decrease of 24.9% from the previous year; the company released the first quarter report of 2023. 23Q1 achieved revenue of 0.3 billion yuan, down 57.9% from the previous year, and net profit of Guimo - 0.3 million yuan, down 403.1% from the previous year.

22Q4 Gene therapy CDMO business is under pressure, and the positive trend in the industry has not changed. The company achieved revenue of 290 million yuan in 2022, an increase of 14.3% over the previous year. Among them, 22Q4 achieved revenue of 759.76 million yuan in a single quarter, a year-on-year decrease of 16.5%, a year-on-year decrease of 511,000 yuan, a year-on-year decrease of 79.7%, after deducting net profit of 2,093 million yuan from non-Gumo, a year-on-year decrease of 90.5%. By business, 1) the gene therapy CRO business achieved revenue of 659.09 million yuan, an increase of 19.4% over the previous year. The company launched a new “meta-carrier” brand and service to further increase market share, overcome the short-term adverse effects of the scientific research market, and respond quickly to changes in demand; 2) The gene therapy CDMO business achieved revenue of 216.775 million yuan, an increase of 12.5% over the previous year. 22Q4 was affected by the economic environment, and business development was clearly blocked, leading to delays in delivery or order delays in some CDMO projects, and a slowdown in short-term business growth; 3) Biologics, reagents, and Other realized revenue was 6.633 million yuan, an increase of 0.9% over the previous year. Despite short-term capital tightening, the trend of continuing growth in demand for more professional and efficient outsourced services in the gene therapy industry has not changed.

There has been a steady increase in CDMO business orders, and recovery growth is expected after production capacity is released. The company achieved revenue of 307.91 million yuan in 23Q1, a year-on-year decrease of 57.9%, and the net profit of its mother was 317.43 billion yuan, a year-on-year decrease of 363.0%. Among them, gene therapy CRO business revenue was 137.13 million yuan, up 24.2% year on year; gene therapy CDMO business revenue was 15.50.2 million yuan, down 74.6% year on year. The decline in the company's revenue side was mainly due to the tightening of the financing environment and the promotion of pharmaceutical companies' R&D pipelines in a cautious trend. However, the company's overall CDMO business maintained a healthy growth trend. In 23Q1, the company supported CDMO customers to obtain 6 new IND approvals, 16 new CDMO customers, and more than 50 million yuan in new orders; the decline in the company's performance side was due to a decline in revenue, capacity expansion, and expansion of operating scale. The company's Lingang base has built 11 virus production lines and a 5,000 square meter cell production line. Trial operation is expected to begin within 2023. As the Lingang Industrial Base is gradually put into operation, project orders are expected to recover quickly to better meet the rapidly growing demand for gene therapy CDMO.

The company continues to increase investment in R&D, and the two core technology clusters continue to improve. The company spent 34.888 million yuan on R&D in 2022, an increase of 47.5% over the previous year. R&D expenditure accounted for 12.0% of operating income, and 23Q1 R&D expenditure was 11.27 million yuan, an increase of 58.8% over the previous year. The growth trend continued. In 2022, the company added 10 authorized invention patents and 1 utility model patent. 1) In terms of gene therapy vector development technology research, gene carriers are continuously optimized and transformed. The PCSlenti lentivirus packaging system has been authorized by a national invention patent and has been invested in CRO services, and the novel gene therapy vector “AAVneo Technology System” for adeno-related viruses has progressed a lot; the gene carrying capacity continues to increase, and the maximum capacity of the “BigAdeno” large-capacity adenovirus vector packaging system exceeds 10Kb; gene therapy vector titer is constantly increasing; 2) In terms of gene therapy vector production process and quality control technology development, the company has completed more than 200 gene therapy vector development According to the process development report, more than 150 gene therapy carrier projects have been run, covering various types of plasmids, lentiviruses, adeno-related viruses, various oncolytic viruses, CAR-T cell therapy products, CAR-NK cell therapy products, stem cell therapy products, mRNA products, etc. The complexity, comprehensiveness, and adaptability of process technology to large-scale production have continued to improve.

Investment advice: In 2023-2025, the company's revenue is expected to be 3.8/52/70 billion yuan respectively, and the net profit of the mother is 0.5/07/80 million yuan respectively, maintaining the “buy” rating.

Risk warning: Risk of changes in customer demand for downstream gene therapy; risk of changes in regulatory policies in the field of gene therapy; risk of increased competition in the domestic market; risk of customer new drug development and commercialization falling short of expectations.