1-3Q2023 performance is lower than we expected.
The company announced 1-3Q2023 results: income 137 million yuan, year-on-year-36.38%; homing net loss 71 million yuan, year-on-year-309.65%; deducting non-net loss 79 million yuan, year-on-year-373.71% Lower than we expected, mainly due to the macro environmental pressure, the weak investment and financing progress of downstream customers led to reduced demand, the company's business development, order delivery and other aspects were affected, while the production capacity of the port base began to release short-term profit margin pressure.
Trend of development
CDMO demand fluctuations, looking forward to the port base capacity utilization. In the first three quarters of 2023: gene therapy CDMO revenue was 73.39 million yuan,-55.81% compared with the same period last year, mainly due to reduced demand from downstream customers under financial pressure, resulting in increased short-term pressure on project delivery and order signing. In April 2023, Heyuan Zhizhao Medical Industrial Base, located in Lingang, Shanghai, opened. The total investment of the project is about 1.5 billion yuan, with a total construction area of about 77000 square meters. After it is put into operation, the operating cost increases, and the gross profit margin of CDMO and the rate of period expenses are under short-term pressure. Gene therapy CRO income is 53 million yuan, + 22.56% compared with the same period last year, with relatively steady growth. In the long run, after the port base is put into operation, the company's CDMO market expansion ability will be improved, and the newly signed orders will maintain the growth trend. We look forward to the repair of the profit margin after the production rate of the port base gradually climbs up the slope.
Continue to increase investment in research and development. The R & D cost of 1-3Q2023 is 38.58 million yuan, which is + 62.47% compared with the same period last year, and the R & D cost rate is 28.16%. It is mainly distributed in frontier non-viral vectors such as mRNA and exosomes, R & D optimization of viral vectors, development of cutting-edge cell culture technology, development of detection technology, and so on.
The company's technology platform has been gradually improved. As of 2023H1j1) lentivirus, cSLenti lentivirus packaging system (used to overcome non-virus lentivirus vector production) further expand the scope of application, for a variety of lentivirus vectors have increased virus production, combined with other optimization for CAR-T lentivirus production, the output can be increased by 40%. The newly developed pASLenti lentivirus packaging system for LncRNA expression has been successfully tested and has been authorized by the national invention patent. 2) in the aspect of adeno-associated virus, the traditional AAV Shuffling library based on the capsid sequences of 38 wild-type AAV was constructed, and the scheme of AAV fixed-point Shuffling library was designed creatively.
Profit forecast and valuation
Due to the pressure on the company's short-term demand due to the impact of the macro environment and the decline in the profit margin of the port base, we reduced the 202.3% net profit in 2024 by 202.4% to-48.99 million yuan / 2.73 million yuan.
To maintain the outperform industry rating, we lowered our target price by 17.6% to 10.30 yuan (based on the DCF valuation method), which is 25.3% upside from the current stock price.
Risk
Downstream demand fluctuations, regulatory policy changes, market competition intensified, customer commercialization is not as expected.