The revenue side is under phased pressure, the CDMO business is developing steadily, and profitability continues to increase. In the first three quarters of 2023, the company achieved revenue of 4,577 billion yuan (+4.66%), net profit of 967 million yuan, net profit of 967 million yuan, net profit of 952 million yuan (+24.75%), net profit of 952 million yuan (+24.75%); gross margin reached 39.31% (+4.59 pct), and net interest rate reached 21.07% (+4.11 pct). Looking at Q3 alone, it achieved revenue of 1,322 billion yuan (-6.80%), net profit of 345 million yuan (+25.39%); net profit after deducting non-return net profit of 339 million yuan (+15.16%); gross margin reached 41.54%, an increase of 7.68 pct over the previous year, an increase of 1.38 pct; and net profit of 25.95%, an increase of 6.68 pct over the previous year, an increase of 3.21 pct over the previous year. Affected by increased competition in the overseas API market, the company's revenue side is under phased pressure; the CDMO business is developing steadily, and profitability continues to increase. Considering increased competition in the API industry, we lowered the company's profit forecast for 2023-2025. The estimated net profit was 1,24/ 15.16/1,864 billion yuan (originally estimated at 12.37/16.54/2,147 billion yuan), EPS was 1.35/1.69/2.07 yuan, and the current stock price corresponding to PE is 20.3/16.2/13.2 times. Given the continued development of the company's CDMO business, the “buy” rating was maintained.

The CDMO project pipeline is becoming more and more abundant, and the 2023H1 CDMO business achieved revenue of 2,482 billion yuan, an increase of 25.91% over the previous year; the gross margin reached 40.96%, an increase of 0.95 pct over the previous year. The company successfully passed the pre-marketing on-site inspection of 1 NDA new drug project; of the projects it undertook, 29 listed projects, 66 phase III clinical projects, and 839 phase I/II clinical projects; the subsidiary Kangchuanji Pharmaceutical completed 3 generic drug applications, helping customers obtain 4 generic drug approvals. After acquiring Ruihua Zhongshan, the company further integrated pharmaceutical production capacity and continued to promote one-stop service capabilities for APIs and pharmaceutical CDMO.

Continuing to expand the specialty API product line, the rapid development of the pharmaceutical business is expected to bring an additional volume of 2023H1 API intermediates business to achieve revenue of 693 million yuan, a year-on-year decrease of 10.87%; gross margin reached 32.12%, an increase of 2.43 pct over the previous year. The company continues to expand the product line of specialty APIs and actively lays out products in the fields of anti-inflammatory and anti-infective drugs, and siglitine phosphate, which treats type II diabetes, has been approved for marketing. At the same time, the company is rapidly advancing the registration and declaration of drug development projects. 2023H1 already has 18 generic drug formulation projects in different R&D approval stages. Of these, 1 project has received ANDA approval, and 3 projects have been deemed to have passed the consistency evaluation, which is expected to bring additional volume to the company's future performance growth.

Risk warning: declining market demand for drug production outsourcing services, loss of core members, etc.