Performance is under pressure in the short term, and the overall development of overseas business is steady

In 2023H1, the company achieved revenue of 872 million yuan, an increase of 17.43% over the previous year; net profit of 166 million yuan, an increase of 2.17% over the previous year; net profit of 156 million yuan after deducting non-return net profit of 156 million yuan, an increase of 1.39% over the previous year. Looking at Q2 alone, the company achieved revenue of 421 million yuan, an increase of 8.80% over the previous year; net profit of 65 million yuan, a year-on-year decrease of 24.41%; net profit after deducting non-return net profit of 57 million yuan, a year-on-year decrease of 27.52%. Affected by a slowdown in downstream demand, the company's performance is under pressure in the short term. The number of customers served by 2023H1 exceeded 2,000, adding 179 new customers; the amount of new orders signed reached 1,557 billion yuan, a slight decrease compared to the same period last year. The company's overseas business is developing steadily. 2023H1 revenue reached 226 million yuan, a year-on-year increase of 32.42%, and its share increased to 25.88%. Considering the slowdown in downstream demand, we lowered our profit forecast for 2023-2025. We expect net profit from 2023-2025 to be 387/476/577 million yuan (originally estimated at 491/7.15/1,039 million yuan), EPS is 2.88/3.54/4.29 yuan, and the corresponding P/E for the current stock price is 26.7/21.7/17.9 times, respectively. Given the steady development of the company's overseas business, we maintain the “buy” rating.

Forward-looking layout in the field of biomedical cutting-edge technology, and establishing multiple API and formulation research technology platforms 2023H1's drug discovery and pharmaceutical research business achieved revenue of 402 million yuan, an increase of 18.12% over the previous year; 656 million new orders were signed, with a total of 1,551 R&D personnel. In the field of drug discovery, the company actively lays out hot fields such as chiral drugs, glycochemistry, antibodies and antibody drug conjugates (ADC), and nucleoside/nucleotide drugs, and has established and gradually improved PROTAC technology and BSL-2 laboratories. In the field of pharmaceutical research, the company has established research platforms for various APIs such as novel contrast agents, crystals, and salt forms, and has also established multiple formulation technology platforms and research platforms for traditional Chinese medicine and small nucleic acids. Currently, it is expanding research and development fields for new formulations such as nanoantibody preparations.

The production capacity of the GLP laboratory is growing steadily, and the scarce China-US GLP qualification contribution performance increased 2023H1. The company's pre-clinical research business achieved revenue of 470 million yuan, an increase of 16.83% over the previous year; 901 million new orders were signed, with a total of 1,159 R&D personnel. The company has passed the NMPA's regular review of GLP qualifications. The scope of GLP services has been increased from 8 to 9, and the GLP laboratory area has increased from 11,000 square meters to 29,000 square meters. 45/10 of the new drug and generic drug projects that 2023H1 has participated in R&D have passed NMPA/FDA approval for clinical trials, respectively. Project revenue carried out in accordance with the requirements of the China-US double reporting standards reached 277 million yuan, accounting for 31.79% of the main business revenue. The scarce China-US Double Report GLP qualifications continue to contribute to increased performance.

Risk warning: declining demand in the drug development market, loss of core members, production capacity falling short of expectations, etc.