Key points of investment
Financial performance: Fluctuating demand, declining growth and profitability
2023Q1-Q3: Achieved revenue of 4.325 billion yuan, up 13.31% year on year; net profit to mother was 583 million yuan, a decrease of 3.48% year on year; net profit after deducting non-return to mother was 539 million yuan, a decrease of 4.84% year on year.
2023Q3: Achieved revenue of 1,374 billion yuan, a year-on-year decrease of 1.13%; net profit to mother was 157 million yuan, a year-on-year decrease of 22.04%; net profit after deducting non-return to mother was 146 million yuan, a decrease of 24.92% year-on-year.
Growth capacity: High base+extended order delivery cycle. Looking at the short-term pressure segment, the formulation division confirmed revenue in the first three quarters of 2,482 million yuan, accounting for about 57.4%; the bioprocess division confirmed revenue of 989 million yuan, accounting for 22.87%; the engineering division confirmed revenue of 394 million yuan, accounting for 9.13%. We infer that the pharmaceutical sector is mainly benefiting from the sterile injectables business and that the share of the bioprocessing sector has declined due to the high COVID-19 business base.
Profitability: Competition intensified the decline in gross margin, and market expansion strengthened the gross margin perspective. The gross margin for the first three quarters was 38.24%, down 2.33% from the same period last year. The main influencing factors were changes in product structure and other factors such as intense market competition. From an expense ratio perspective, sales expenses of 245 million yuan (+45.60%) and sales rate of 5.67% (+1.17pp) are due to increased sales staff and increased marketing. The management fee was 382 million yuan (+6.39%), the management fee rate was 8.84% (-0.57pp), and the rate remained stable. R&D expenses of 270 million yuan (+16.01%), R&D expenses 6.23% (+0.15pp). Finance rate -1.21% (-1.15pp).
The company stated in the minutes of public exchange that the company is actively taking various measures to reduce costs and increase efficiency in order to reduce costs. It also plans to enhance product innovation capabilities through self-research or mergers and acquisitions, enter leading customer groups, continuously accelerate the internationalization process, and increase international market share and share of international revenue. We anticipate that the company's profitability will gradually recover.
The fundraising project is progressing smoothly and is expected to be put into production one after another in 25-26
The company's fund-raising project is progressing smoothly. The biopharmaceutical equipment industry trial production center project raised 530 million yuan and is expected to be put into operation in 2026; the Zhejiang Dongfulong Life Science Industrialization Base project raised 860 million yuan, and the main construction has been completed and is expected to be put into operation in 2025; the Jiangsu biomedical equipment industrialization base project has raised 62 million yuan. Currently, all underground infrastructure construction of the plant has been completed and is expected to be put into operation in 2025. As the fund-raising project is gradually implemented, it is expected to contribute to a considerable increase in performance in the future.
Profit forecasting and valuation
Considering factors such as the competitive landscape of the industry, we predict that the company's net profit for 2023-2025 will be $800 million, $978 million and $1,182 million, respectively, and EPS of 1.05, 1.29, and 1.55 yuan, respectively. Corresponds to the closing price of December 28, 2023, about 14 times the 2024 PE. Refer to comparable company valuations and maintain an “overweight” rating.
Risk warning
Cyclical & volatile order delivery risk, merger and acquisition integration progress falling short of expectations, risk of impairment of goodwill, and risk of price reduction due to fierce market competition.