Key points of investment
The profitability of 2023Q3 continues the trend of improving Q2. We continue to be optimistic about the sustainability of CDMO business revenue growth in the context of the company's continuous increase in BD efforts.
Performance: The growth rate of Q3 revenue and net profit is basically continuing the Q2 trend. The company released its results for the third quarter of 2023. 2023Q1-Q3 achieved revenue of 4,577 billion yuan (YOY 4.66%) and net profit of 967 million yuan (YOY 30.08%). Among them, 2023Q3 achieved revenue of 1,322 billion yuan (YOY -6.79%) and net profit of 345 million yuan (YOY 25.39%). Revenue and profit growth in Q3 basically continued the Q2YOY trend.
Profitability: Q3 continued the month-on-month upward trend, and sales expenses continued to increase 2023Q3 gross profit margin by 41.54% (year-on-year +7.68pct), and net profit margin 25.95% (year-on-year +6.68pct). The Q3 profitability trend is in line with our interim report analysis. Looking at the cost rate in 2023Q3, the R&D expense rate increased by 1.24 pct year on year, the financial cost rate increased by 0.71 pct year on year, and the sales expense ratio increased by 0.65 pct year on year, but the management cost rate decreased by 0.62 pct year on year. We expect profitability to continue on an upward trend throughout 2023.
In addition, we have also noticed that the absolute value of the company's 2023Q1-Q3 sales expenses reached 65 million yuan (58 million for the full year of 2022), which has already exceeded the absolute value level of sales expenses for the full year of 2022. We believe that the company continues to increase its revenue share as it continues to increase its project BD efforts and also expects more CDMO projects to continue to be implemented.
At the same time, we also expect higher gross margins to continue to increase in the share of CDMO business revenue to drive the company's 2024-2025 gross margin to remain at a high level or even continue to rise.
Profit forecasting and valuation
Considering that the prices of API intermediates are still fluctuating in 2023, and there is still no significant improvement in investment and financing in the global healthcare industry, we slightly lowered the company's revenue forecast for 2023 to 2025. We expect the company's EPS for 2023-2025 to be 1.34, 1.68, and 2.05 yuan (previous values were 1.48, 1.9, and 2.41 yuan, respectively), and the closing price on November 17, 2023 corresponds to 20 times PE in 2023 (16 times PE in 2024). We are optimistic that in the context of the company's sales expenses continuing to increase, the CDMO business revenue will continue to grow and maintain the “buy” rating.
Risk warning
Risk of production safety accidents, risk of discontinuation of production due to environmental incidents, risk of volatility in CDMO business orders, risk of fluctuations in API prices.