Introduction to this report:

Regular business is growing steadily, capacity building is being consolidated, globalization and new business layout are being strengthened, and long-term growth is maintained.

Key points of investment:

Maintain an increase in holdings rating. The company's 2023Q1-3 revenue was 3,037 billion yuan (-41.79%), and net profit was 452 million yuan (-71.36%). The performance was in line with expectations. New businesses such as pharmaceuticals, CGT, and biomacromolecule CDMO are still in a state of loss (net profit reduced by about 0.71, 0.65, and 0.05 billion yuan); considering the impact of investment and financing on terminal demand, the 2023-2025 EPS forecast was lowered to 0.98/1.01/1.22 (originally 1.56/1.71/2.15 yuan), considering that emerging CGT and pharmaceutical CDMO businesses are expected to gradually materialize and enjoy valuation premiums. Granting 2023PE37X, maintaining a target price of 35.88 yuan and maintaining an increase in holding rating.

Regular business is growing steadily, and the profit side is under pressure. CDMO, a small molecule API, has revenue of 2,942 billion yuan (-43%); pharmaceutical CDMO has revenue of 61.19 million yuan (+237%), new orders of 144 million yuan (+211%); CGT CDMO revenue is 31.23 million yuan (+85%), and new orders have been signed for 58 million yuan (-46%). The decline in growth is expected to be mainly affected by the decline in investment and financing. Excluding large orders, regular business revenue increased 26% year over year. The gross profit margin for the first three quarters was 46%, down 6.56pct year on year, and the net profit margin was 11.9%, down 17.0% year on year. The decline in profitability is expected to be mainly due to high margin order delivery in the same period last year, increased costs, expenses, depreciation and amortization of fixed assets.

Consolidate capacity building and expand the number of projects and customers. 2023Q1-3, the number of signed orders (excluding J-STAR) is 592 (+32%); the number of service API products is 144 (+17), and API revenue is 339 million yuan (+31%). During the reporting period, the Shanghai Waigaoqiao Biopolymer Research and Development Center invested in a new crystallization and formulation research site in New Jersey, USA, and the new capacity building was gradually implemented.

Catalysts: Order growth exceeded expectations, and demand for new business terminals exceeded expectations.

Risk warning: industry competition heightens risks; exchange rate fluctuation risks; environmental safety risks.