The company released its 2023 annual report. Throughout 2023, the company achieved operating income of 40.34 billion yuan, an increase of 2.5% year on year; net profit to mother of 9.607 billion yuan, up 9.0% year on year; net profit after deduction of 9.748 billion yuan, up 16.8% year on year; adjusted non-IFRS net profit of 10.9 billion yuan, up 15.5% year on year. In the fourth quarter, the company achieved operating income of 10.08 billion yuan, a year-on-year decrease of 1.47%; net profit after deducting non-return to mother was 2.04 billion yuan, an increase of 0.5% over the previous year.
Annual revenue exceeding 40 billion dollars is in line with expectations, and growth remained strong after excluding COVID-19 projects: the company's annual revenue exceeded 40 billion dollars, and the overall growth after commercialization of COVID-19 was 25.6%. The company has a large, diverse and loyal customer base, covering all of the top 20 global pharmaceutical companies. In 2023, the top 20 global pharmaceutical companies accounted for about 40% of the company's overall revenue. As the number and types of services on the company's enabling platform continued to increase, the number of new and old customers of the company grew steadily, and the global Top 20 pharmaceutical companies' contribution revenue (excluding COVID-19 commercialization projects) increased 44% year-on-year. Furthermore, the company's on-hand orders (excluding COVID-19 commercialization projects) increased 18% year over year, of which: TIDES's in-hand orders +226% year over year.
From the perspective of revenue split for the full year of 2023, the chemical business grew more than expected after excluding commercialization. Polypeptides grew at a very high rate, testing business was stable, ATU revenue slowed, and DDSU declined: 1) Chemical business: Revenue of 29.17 billion yuan, +1.1% year over year (+36.1% year over year excluding COVID-19 commercialization projects). Process R&D and production (D&M) business revenue was RMB 21.62 billion, down 0.1% year on year. Excluding specific commercial production projects, D&M business revenue grew strongly by 55.1% year on year, adding 20 commercialized and phase III clinical projects. The TIDES business (mainly oligonucleotides and peptides) continues to expand. During the reporting period, TIDES business revenue reached RMB 3.41 billion, a strong year-on-year increase of 64.4%. The company completed production capacity expansion projects at the Changzhou and Taixing bases. The new production capacity was put into use in January 2024, and the volume of the peptide solid phase synthesis reactor was increased to 32,000 L. 2) Testing business: Revenue of 6.54 billion yuan, +14.4% year over year, including laboratory analysis and testing revenue +15.3% year over year, drug safety evaluation business revenue increased 27.3% year over year, and clinical CRO and SMO revenue +11.8% year over year. 3) Biology services: Revenue of 2.55 billion yuan, +3.1% year over year, revenue related to new molecular types increased 26% year over year, contributing 27.5% of biology business revenue. 4) ATU: Revenue of 1.31 billion yuan, +0.1% YoY. The second commercialization project was approved in February 2024. In June 2023, the company signed an LVV production order for commercial CAR-T products. Process verification is ongoing, and production is expected to begin in the first half of 2024. In addition, the company is preparing a BLA declaration for the production of a major commercial CAR-T product. It is expected that process verification will be completed in the first half of 2024 and the FDA will be declared in the second half of 2024. 5) DDSU: Revenue of 730 million yuan, -25.1% YoY.
Operational efficiency improved, and profitability continued to be high: In 2023, the adjusted non-IFRS gross margins of the company's chemical business, testing business, and biology business increased by 3.9, 1.9, and 1.5 percentage points year-on-year, respectively, while gross margin of ATU decreased 3.7 percentage points.
Outlook 2024: The company expects revenue to reach RMB 383-40.5 billion in 2024, and will maintain positive growth after excluding specific commercial production projects (estimated growth rate of 2.7-8.6%). The adjusted non-IFRS net interest rate is expected to be maintained in 2024 at the same level as last year.
Profit forecast and rating: Based on the company's proposed bill submitted to the US House of Representatives and US Senate in January 2024 and pre-defined as a “biotech company to be concerned about,” and potentially affecting forward customer order behavior, we have lowered our medium- to long-term revenue and profit forecasts accordingly. We expect the company's net profit to be 10.26 billion yuan, 11.75 billion yuan, and 13.37 billion yuan respectively in 2024-2026, up 6.8%, 14.5%, and 13.8% year-on-year; the corresponding PE is 15x, 13x, and 12x, respectively, maintaining a “buy” rating.
Risk warning: Risk of order execution falling short of expectations, risk of declining demand for pharmaceutical research and development, increased risk of international trade disputes, risk of exchange rate fluctuations.