Investment highlights

For the first time, it covered Boteng shares (300363) and gave it an outperforming industry rating. The target price is 33.00 yuan, corresponding to 20.5/20.1 times 2023/2024 based on the P/E valuation method. The reasons are as follows:

Boteng Co., Ltd. is a leading CDMO company in China. The company can provide customized R&D and production services for chemicals, biopharmaceuticals and formulations required for the entire life cycle from early clinical research to drug marketing. It is a leading small molecule CDMO in China. It has established stable cooperative supply relationships with many large overseas pharmaceutical companies, and has leading R&D technology platform capabilities, perfect quality management, EHS management systems and good delivery records. In 2023H1, the company's revenue after deducting COVID-19 from major orders increased by about 29% year-on-year. Regular business growth was steady, and the leading company maintained its advantage.

API CDMO: Ranked in the first tier of China, project structure optimization brings new momentum. Global pharmaceutical R&D investment is growing steadily, and the CDMO market is growing rapidly. Frost & Sullivan expects the global market size to increase to US$124.3 billion in 2025, with a CAGR of 18.4% in 2021-2025. The company's API CDMO business is in the first tier of the industry, with a market share ratio of third in the country in 2021. In recent years, the number of API projects has continued to grow, and the proportion of high-value-added orders has increased. We expect it to become an important driving force for future performance growth.

New business: The formulation and CGT business layout is progressing steadily. (1) Formulation CDMO: The synergistic effect of DS+DP is gradually showing, and the capacity layout continues to advance. The number of new pharmaceutical business projects increased rapidly from 3 in 2020 to 80 in 2022, and the number of new pharmaceutical orders increased from 0.2 billion yuan in 2020 to 120 million yuan in 2022, which is in a period of rapid growth; (2) Cell and gene therapy CDMO: The company has end-to-end service capabilities, while production capacity construction is progressing steadily. The laboratory on the fourth floor of the gene cell therapy service platform project in Suzhou has been completed and put into use. In addition, the company is also actively expanding businesses such as peptides and oligonucleotides, and the company's new business layout is progressing steadily.

What is our biggest difference from the market? The macroeconomic environment affects the prosperity of CDMO's business, and there is downward pressure on the prosperity of the CDMO business. We believe that the company is in the leading echelon, the proportion of overseas customers is high, and the business is resilient.

Potential catalysts: Release of production capacity for pharmaceutical CDMO and biological CDMO operations; release of production capacity at production sites in Slovenia.

Profit forecasting and valuation

We expect the company's EPS for 23-24 to be 1.61/1.64 yuan, respectively. For the first time, coverage gave an outperforming industry rating, giving the company a target price of 33 yuan, corresponding to 20.5x/20.1x P/E in 2023/2024 and 22.2% room for growth. The current stock price corresponds to 16.8x/16.5 times P/E in 2023/2024.

risks

Major customers account for a high share of revenue; intense competition; order fluctuations; raw material price increases; new business development falls short of expectations; exchange rate risk; geopolitical risk.