Event: on October 25, the company released a three-quarter report that the first three quarters of 2023 achieved operating income of 367 million yuan, an increase of 10.56 percent over the same period last year, and a net profit of 46 million yuan, an increase of 20.33 percent over the same period last year. The third quarter of 2023 achieved operating income of 130 million yuan, an increase of 2.61 percent over the same period last year, and net profit reached 13 million yuan, down 26.09 percent from the same period last year.

The performance is lower than expected, waiting for improvement in the future. We expect that the lower-than-expected growth rate at the revenue end of 2023Q3 is related to the poor performance of process research and development business, and some long-term orders have not yet reached the revenue recognition node; in addition, we expect the high probability of decline in profit-side growth compared with the same period last year to: 1) stop production in the commercial production sector for capacity upgrading, unable to recover high-value materials, and 2) Chengdu Hongbo new recruitment staff, resulting in certain pre-training costs and other factors.

The commercial production sector grew steadily, and the newly signed orders fluctuated in the single quarter. In terms of segments, we expect 2023Q3:1) drug discovery business revenue to be basically the same as the same period last year. 2) process research and development business revenue dropped by about 20% compared with the same period last year. 3) Commercial production business revenue increased by about 26% year-on-year. In addition, customers usually make R & D plans at the beginning of the year, and the third quarter is usually the off-season of the company's newly signed orders, so we speculate that the company's 2023Q3 newly signed orders have fluctuated.

Build the ability of integrated service and be optimistic about the growth potential in the future. The company is based on the small molecule drug discovery business, takes the design ability as the core competitive advantage, and continues to expand the business to pharmaceutical research and CDMO business, so as to build an integrated service capability and provide customers with one-stop service. We are optimistic about the future growth potential of the company.

Investment suggestion: we estimate that the company's operating income from 2023 to 2025 will be RMB 559 and RMB 750,000,000 respectively, an increase of 16.70%, 34.17% and 34.40% respectively over the same period last year. The net profit belonging to the shareholders of the listed company was 0.88 yuan respectively, an increase of 31.62%, 39.06% and 35.50%, respectively, compared with the same period last year, corresponding to the current PE of 45max, 32max, 24X and continuously given a "buy" rating.

Risk hints: the risk of lifting the ban, the risk of rising labor costs and brain drain, the risk of environmental protection and production safety, the risk of single and concentrated commercial production, exchange rate fluctuations and other risks.