Incident: On March 18, 2024, Yao Ming Kangde released its 2023 annual report. The company achieved annual revenue of 40.34 billion yuan, a year-on-year increase of 2.5%, and a growth rate of 25.6% after COVID-19; net profit to mother of 9.61 billion yuan, an increase of 9.0% year on year; adjusted net profit of 10.86 billion yuan, up 15.5% year on year. Looking at a single quarter, the company achieved revenue of 10.08 billion yuan, down 1.5% year on year; net profit to mother of 1.53 billion yuan, up 6.6% year on year; adjusted net profit of 2.69 billion yuan, up 2.5% year on year.
The non-COVID-19 business has grown steadily, and profitability has improved significantly. By sector, (1) WuXi Chemistry's revenue was 29.17 billion yuan (+1.1%), a growth rate of 36.1% after excluding COVID-19 commercialization projects. Among them, R revenue was 7.55 billion yuan (+4.7%), and D&M revenue was 21.62 billion yuan (-0.1%). Excluding COVID-19, the year-on-year increase was 55.1%, and the back-end business maintained strong growth. TIDES molecular pipelines and production capacity continued to increase, with revenue reaching 3.41 billion yuan (+64.4%) in 2023, and on-hand orders increased strongly by 226%; with the completion of production expansion at Changzhou and Taixing bases, peptide solid phase synthesis capacity has increased to 32,000 L. The gross margin of the chemical sector increased by 4.5 pts year-on-year, mainly due to business efficiency improvements and exchange rate effects. (2) WuXi Testing's revenue was 6.54 billion yuan (+14.4%), of which laboratory analysis and testing revenue was 4.78 billion yuan (+15.3%); the safety assessment business continued to grow steadily by 27.3%; new 55,000 square meters of production capacity in Suzhou and Qidong were put into operation; clinical CRO and SMO revenue was 1.76 billion yuan (+11.8%), and SMO increased 26.1% year-on-year and maintained China's leading level. (3) WuXi Biology's revenue was 2.55 billion yuan (+3.1%). The biology platform attracted more than 20% of the company's new customers, of which the share of revenue related to new molecules increased to 27.5%. (4) WuXi ATU's revenue of 1.31 billion yuan (+0.1%) helped Hegyuan Biotech's CAR-T Nacchiolense injection and Iovance TIL therapy AMTAGVI obtain approval from the NMPA and FDA, respectively. Two other projects are in the BLA preparation stage. (5) WuxidDSU's revenue was 730 million yuan (-25.1%). The 3 new drugs developed for customers have been approved for marketing, and continued to receive sales share. The gross margin increased 9.5 pts over the same period last year.
Regular business will achieve positive growth in 2024, continuing to improve operational efficiency and capacity utilization. By the end of 2023, the company's on-hand orders were 35.24 billion yuan, up 7.4% year on year. After excluding the COVID-19 project, the number of in-hand orders increased 18% year over year, of which 23.39 billion yuan is expected to confirm revenue in 2024. Based on abundant on-going orders and pipeline projects, the company expects to achieve revenue of 383-40.5 billion yuan (-5.1% ~ 0.4%) in 2024, an increase of 2.7% to 8.6% year-on-year after excluding COVID-19 projects; the adjusted non-IFRS net interest rate will remain the same as in 2023. The company expects capital expenditure of 5 billion yuan in 2024. It will continue to promote the construction of new facilities around the world, and free cash flow will reach 4 to 5 billion yuan.
Investment advice: Pharmacom Kangde is the world's leading integrated, end-to-end CXO leader, empowering new drug research and development projects for domestic and foreign customers through CRDMO and CTDMO business models. We expect the company's net profit to be 95.81/109.59/12.848 billion yuan in 2024-2026, respectively, corresponding PE is 16/14/12 times, maintaining the “recommended” rating.
Risk warning: risk of declining demand, risk of policy change, risk of increased competition, risk of overseas regulation, exchange rate risk, etc.