Event: On January 10, 2024, the company released the 2024 Healthcare Conference briefing.
The number of new projects exceeded expectations, demonstrating the resilience of the company's business in the face of headwinds. 2023Q1, the company was most affected by the slowdown in biotechnology financing. The number of new projects bottomed out, but the recovery began in the second quarter and was strong in the second half of the year, especially in the fourth quarter. The number of new non-COVID-19 projects reached a record high in 2023, and the target number of new projects increased from 80 to 110 in 2024, reflecting the strong growth of the company's drug development business and the industry's higher recognition and trust in the company's brand. In 2023, the number of new projects reached 132. On a quarterly basis, Q1-Q4 achieved 8, 38, 15, and 71 new projects respectively; by region, North America contributed about 55% of new projects, and the proportion of new projects in China rebounded sharply to 25%.
Win continuous strength in molecular strategies, and commercialization projects help long-term growth. 1) Despite various adverse factors, the number of new non-COVID-19 projects in the company has reached the highest level in history. Among them, the “winning molecule” strategy continues to gain strength: as of December 31, 2023, it has obtained 18 external transfer projects, including 7 phase III clinical projects and 2 commercialization projects, some of which may be major drugs.
2) Looking at the stages, the company has 51 phase III clinical projects, 24 commercial projects, and a large number of pre-clinical and clinical phase 1 and 2 projects, laying a solid foundation for future commercial production revenue growth, thus providing a guarantee for the company's long-term growth. Currently, seven projects are expected to contribute more than 200 million US dollars in commercial production revenue every year, 10 projects are expected to contribute 100 million to 200 million US dollars in commercial production revenue every year, and 8 projects are expected to contribute 50 million to 100 million US dollars in commercial production revenue every year.
Production capacity at the Irish base climbed better than expected and is expected to break even in 2024. 1) Currently, construction of the Irish base has been completed at a record speed and has received the ISPE 2023 Best Plant of the Year award. GMP operations at both plants met expectations, and MFG6's first PPQ production was successfully completed. 2) Starting in 2024, there will be a large demand for commercial production, and production capacity will be close to full production in 2025. Breakeven is expected to be achieved in 2024, one year ahead of schedule. 3) 70% of the projects were signed through “winning molecules”, and most of them are blockbuster drugs that have already been marketed. The Irish model can be replicated to other bases to ensure efficient overseas operations.
Profit forecast and valuation: Considering factors such as slowing biotechnology financing and CMO revenue delays, we appropriately lowered the company's profit forecast to 2023-2025 to 16.8 billion yuan, 19.32 billion yuan, and 25.11 billion yuan, respectively, with year-on-year increases of 10.0%, 15.0%, and 30.0%; net profit to mother was 3.316 billion yuan, 3.796 billion yuan, and 4.827 billion yuan, respectively. The corresponding growth rates were -25.0%, 14.5%, 27.2%, PE respectively 33x, 29x, 23x. Maintain a “buy” rating.
Risk warning: The industry's growth rate falls short of expectations, industry competition intensifies, and customer R&D investment falls short of expectations.