Event

The company released a three-quarter report that reported revenue of 468 million yuan in the first three quarters of 2022, an increase of 5.84 percent over the same period last year. The net profit of returning to the mother was 83.84 million yuan, an increase of 18.70% over the same period last year. The non-return net profit was 78.88 million yuan, an increase of 14.16% over the same period last year, and the revenue in the third quarter was 142 million yuan, a decrease of 4.05% over the same period last year. The net profit of returning to the mother was 22.54 million yuan, an increase of 10.62% over the same period last year. The non-return net profit was 21.06 million yuan, an increase of 7.10% over the same period last year.

Brief comment

The epidemic spread in many places in the third quarter, and the company's performance was under short-term pressure.

The company reported three quarters corresponding to Q3 single-quarter revenue of 142 million yuan, down 4.05% from the same period last year.

The net profit returned to the mother was 22.54 million yuan, an increase of 10.62% over the same period last year. The net profit of deducting non-return net profit was 21.06 million yuan, an increase of 7.10% over the same period last year. In the first half of the year, affected by the epidemic in Shanghai, the growth rate of the company's performance slowed down, Q3 spread the epidemic in many places, and the company's performance continued to be under pressure. The increase in profit in the case of declining revenue is mainly due to a 6.74 million increase in interest income and exchange gains and losses brought about by the company's successful listing and fund-raising, and the profit side also declined after deducting financial expenses.

China's leading clinical CRO enterprises, services covering all stages of medical clinical research CRO industry has grown rapidly in recent years, service penetration is still further improving. Compared with Europe and the United States and other developed countries, China and other emerging countries CRO business development is faster. According to the statistics and forecasts of Frost & Sullivan, the size of the domestic CRO market is expected to grow from US $4.7 billion in 2018 to US $17.2 billion in 2023 with a CAGR of 29.4%. Among them, the market size of CRO in the clinical research phase is expected to grow from US $3.2 billion to US $13.3 billion.

The company is a professional outsourced clinical trial service provider with full-chain clinical trial service capability. Six businesses are provided to major pharmaceutical companies and scientific research institutions, including clinical trial operation services ("CO services"), clinical trial site management services ("SMO services"), biological sample testing services ("BA services"), data management and statistical analysis services ("DM/ST services"), clinical trial consulting services and clinical pharmacology services ("CP services"). Among them, CO service is the comprehensive service of phase I to IV clinical trials provided by the company to the sponsors, which accounts for more than 50% of the company's revenue structure.

At present, the company has established a good long-term cooperative relationship with more than 800 medical institutions and researchers in various treatment fields, and has provided clinical CRO services in line with domestic and foreign standards for more than 3600 clinical trial projects of about 850 customers at home and abroad, covering tumor, cardiovascular, endocrine, respiratory, mental, nervous, digestive, immune, blood, urinary and other treatment fields. It has established a good reputation in domestic and foreign markets.

With a strong team of experts and excellent professional ability, all the businesses of the company are led by well-known experts at home and abroad for the long-term development of the company. Dr. CHEN GANG, the chief scientific officer, has served as the head of statistical review in FDA and Johnson & Johnson. Dr. HE KUN, the chief statistician, has worked in the FDA Drug Review Center for more than 10 years, and has served as a statistical reviewer, expert reviewer, authoritative expert reviewer, head of the review team and deputy director of the Statistical Center. The company's expert team has participated in the discussion and formulation of a number of national and industry guiding principles and standards. Dr. CHEN GANG and Dr. HE KUN, as lead authors, participated in the draft guidelines for adaptive design of drug clinical trials, which were issued by the Drug Review Center of the State Drug Administration of China on May 13, 2020.

The company's core competitive advantage is "scientific" as the center, from the design and implementation of clinical trials to maintain a high standard. The innovative Pharmaceutical Science and Strategy Committee has been set up to provide domestic and foreign customers with professional and personalized R & D strategies, top-level design, data interpretation, application preparation and other related services, to help pharmaceutical R & D enterprises to improve the success rate of R & D, shorten the R & D cycle, reduce R & D risks and save R & D costs. For drugs and devices that provide clinical trial operation services through the company and whose sponsors have declared NDA, they are still 100% successful in registration or approval.

Go public and raise more money to further improve the company's service capacity.

The company successfully raised 1.088 billion yuan in its first listing, of which 487 million yuan was over-raised. It is planned to be used for the construction of data science center project, clinical trial management platform project, SMO center project and supplementary liquidity. In accordance with the regulations of ICH-GCP, the data Science Center will implement data collection and automated clinical trial data management, further improve the quality of the company's existing data management and statistical analysis business, and lay the foundation for large-scale data management and statistical analysis business. The clinical trial management platform will carry the auxiliary project management and training of clinical trial operation services, improve the service level of CO services, and improve service quality and efficiency. The establishment of the SMO center will help to strengthen the company's existing SMO business, improve the efficiency and standardization of SMO business, and further expand the scale of the business. From the perspective of fund-raising investment, the company pays more attention to high-margin data statistics business and clinical operation business.

Financial analysis: the expense rate basically remained stable, and the R & D investment steadily increased the company's gross profit margin by 34.6% in the third quarter, which was about 2 percentage points lower than that of the same period last year. We expect that the main reason is the change in revenue share of different business sectors. The expenses for sales, management and R & D are 3.38 million, 17.87 million and 11.77 million yuan respectively, and the expense rates are 2.37%, 12.57% and 8.28%.

The rate of sales expenses was the same as the same period last year, with an increase of 0.54 percentage points from the previous month. The rate of management and R & D expenditure increased by 1.8% and 1.4% compared with the same period last year, and increased by 4.36% and 0.95% compared with the same period last year. We expect that the decrease in consulting services and travel expenses affected by the epidemic in the first half of the year is related to the recovery in the third quarter, and the overall expenditure rate remains basically stable. The R & D expenditure rate has increased in three quarters compared with the same period last year, and the company's R & D investment has increased steadily. The financial expenses for the third quarter were-7.01 million yuan, and the financial expense rate was-4.93%, down 4.75% from the same period last year and 2.44% from the previous quarter, mainly due to the increase in interest income after the listing.

Profit forecast and investment rating: we expect the company's operating income in 2022, 2023 and 2024 to be 6.7,8.0 and 950 million yuan respectively, and the return net profit to be 1.2,1.4 and 190 million yuan respectively, with corresponding growth rates of 17,23,31% respectively, corresponding to 39,32,25 times of PE. Considering that the company is a domestic CRO head company and has sufficient cash on hand after listing, it is covered for the first time and is given a buy rating.

Risk hint: market competition aggravates risk: international CRO sets up branches in China, domestic CRO industry develops rapidly, market concentration is low, CRO company grows rapidly, industry competition intensifies; growth risk: the company's business scale is relatively small, and its ability to resist market risks is limited. The business process may be affected by industry policy, market competition pattern, changes in customer demand, etc.; Human resource risk: clinical CRO industry is a talent-intensive industry, specialized talents are relatively scarce, the company still has potential risks in stabilizing existing core technical personnel and key management personnel, absorbing and training technical and management personnel needed for the development of the company. Fund-raising management and project implementation risk: the company's first fund-raising will be used to develop the main business, but the project implementation still needs to go through project design, construction, personnel training and other links. Problems in the main links may bring risks to the implementation of the project.