Event: the company recently held an investor open day, and the company's management (including the management of Longhua Pharmaceutical) introduced in detail the future development and prospect of the company, the technology platform, the layout of the industry chain, the introduction and development prospect of Longhua Pharmaceutical business, and the development and prospect of EFS model.
Drug Discovery CRO is a global leader in business technology capabilities, bringing stable cash flow to the company. After more than a decade of deep ploughing, the company is a world leader in structure-based new drug development technology (SBDD), fragment-based new drug discovery technology (FBDD), membrane protein target drug development technology, and affinity-based high-throughput screening technology (ASMS). The company has completed more than 100 screening projects for customers through the ASMS platform, some of which have been advanced to clinical trials. The company is one of the largest protein structure research platforms in the world. The employee equity incentive is sufficient, and the option incentive covers nearly 50% of the employees. 2020H1 orders on hand totaled 490 million yuan, up 138% from the same period last year.
Through the acquisition of Zhejiang Longhua to expand the CDMO industry downstream, CFS partners + EFS holding company diversion, upstream and downstream business coordination to drive the rapid growth of the company's revenue. Longhua merged in November 2020. Longhua Pharmaceutical is a CMO/CDMO company located in Taizhou, Zhejiang Province. Rich experience in the field of scale-up production, while the production system through the domestic NMPA GMP certification, has also been the United States FDA, Europe EDQM and WHO, PSCI official certification. Longhua has done business with the world's largest pharmaceutical companies for many years and already has the foundation of innovative drug CDMO business. According to the company announcement, the company expects Longhua to complete 33 CDMO projects this year, most of which are from Big Pharma. The company has laid out the R & D team (especially CMC) in advance to enhance the ability of "D". At present, the company has a CMC team of 50 people in Shanghai and a total of 150 talents in Longhua and Ningbo. Longhua made a net profit of 91 million yuan in 2019 and promised 160 million yuan in 2020. The company is carrying out capacity expansion to Longhua, and it is expected that with the improvement of capacity utilization and net interest rate, the growth rate of revenue and profit of Longhua will be higher than that of production capacity in the future.
The EFS model fits closely with drug discovery services and provides acceleration for the company's development. The company's EFS business model has the flywheel effect, the company's technical platform strength continues to accumulate, and at the same time, it has the ability to select projects and form a positive cycle. The company has accumulated for many years in the field of new drug screening technology + career partner system (30-person expert team), has the strength to distinguish between good and bad projects, real-time tracking of project progress, seize more exit opportunities, while minimizing risk. The company reviews nearly 1000 projects every year, with a pass rate of less than 5 per cent. At present, the rate of return of the exited project is more than 2 times. As of October 30, 2020, the company has invested in more than 60 start-ups, with an average stake of 25% per enterprise, with a total of 109 pipeline products. At present, 10 pipeline products have entered the clinical stage, and it is expected that 20 pipeline products will be declared by IND next year. At the same time, the company has invested in incubators this year, obtaining 9 new rounds of new financing, with a total financing of nearly 200 million US dollars, and 24 new investment institutions to participate in the company's portfolio investment.
Investment suggestion: considering Longhua's consolidated table from November to December 2020, we estimate that the company's income from 2020 to 2022 will be 720 million yuan (+ 122.9%), 2.789 billion yuan (+ 287.3%) and 3.684 billion yuan (+ 32.1%), respectively. The adjusted net profit is 435 million yuan (+ 36.6%), 646 million yuan (+ 48.7%) and 883 million yuan (+ 36.6%) respectively. The corresponding adjusted EPS is 0.23,0.34 and 0.46 yuan respectively, and the corresponding PE is 34 times, 23 times and 17 times respectively. We are optimistic about the future coordination of CRO business, CRO business and CDMO business, as well as the rapid growth of investment incubation business, giving a "buy-A" rating.
Risk hints: the industry boom is lower than expected, the risk of major changes in industry regulatory policies, increasingly fierce competition from similar domestic enterprises, less than expected progress in capacity construction, rising labor costs, exchange rate risk, overseas epidemic increasingly serious impact on overseas orders, and so on.