Incident: The company announced its 2023 annual report. In 2023, the company achieved revenue of $40.341 billion (+2.51%), net profit to mother of 9.607 billion yuan (+9.00%), adjusted non-IFRS net profit of 10.855 billion yuan (+15.48%); in a single Q4, revenue of 10.799 billion yuan (-1.47%), the mother of 1.53 billion yuan (+6.58%), adjusted non-IFRS net profit of 2,687 billion yuan (+2.30%).
The performance is in line with expectations and is expected to maintain steady growth in 2024: the performance is in line with expectations, with revenue exceeding 40 billion yuan (+2.51%) (guidance 2-3%), and adjusted non-IFRS net profit to mother of 10.855 billion yuan (guidance exceeds 10 billion yuan). Excluding the impact of specific commercialization projects, regular business revenue also increased by 25.6%, and on-hand orders also increased by 18%. Both revenue and in-hand orders maintained a good growth trend. It is expected to maintain steady growth in 2024, with revenue of 383-40.5 billion yuan in 2024 according to company guidelines, maintaining an increase of 2.7 to 8.6% after excluding COVID-19 commercialization projects; at the same time, the adjusted non-IFRS net interest rate to mother remains the same as in 2023 (remaining at 26.9%).
Various business segments are growing steadily, and peptide CDMOs are rapidly being released: Various business segments have maintained steady growth. Among them, the peptide business has performed well. With the further release of production capacity and abundant on-hand orders, it is expected to further drive strong revenue growth in the chemical business. By sector, 1) The chemical sector achieved revenue of 29.17 billion yuan (+1.1%) in 2023, of which peptides achieved revenue of 3.41 billion yuan (+64.4%), and on-hand orders also increased 226%. At present, Changzhou and Taixing's new production capacity was put into use in January '24. The total volume of the company's solid phase peptide synthesis reactors increased from 6000 L in '22 to 32,000 L, and the new production capacity is expected to guarantee the rapid growth of peptide CDMO. 2) The test sector achieved revenue of 6.54 billion yuan (+14.4%). Due to the investment and financing environment, Q4 revenue growth slowed, but some businesses maintained good growth. In 2023, security assessment revenue also increased 27.3%, and SMO revenue also increased 26.1%. 3) Biology/ATU/DDSU achieved revenue of 25.5/13.1/73 billion yuan (+3.1%/-25.1%) in 2023. Despite environmental pressure, with the exception of DDSU, which is in the midst of transformation pain, all other new business segments maintained positive growth.
The increase in operating efficiency is compounded by the impact of exchange rates, and the profit side continues to improve: in 2023, the adjusted non-IFRS gross margin was 42.0% (+3.3pct), the adjusted non-IFRS net profit margin was 26.9% (+3pct), and profitability continued to improve. By sector, the adjusted non-IFRS gross margin of chemical/testing/biology/ATU/DDSU was 45.1%/38.6%/42.4%/-9.6%/36.5% (+3.9/+1.5/-3.7/+6.3pct), respectively.
Investment advice: We expect the company to achieve operating income of 400.43/442.70/48.203 billion yuan and net profit to mother of 96.93/107.41/11.698 billion yuan in 2024-2026. The corresponding PE was 15.23/13.74/12.62 times, respectively, maintaining the company's “gain” rating.
Risk warning: risk of geopolitical impact exceeding expectations; risk of new business expansion falling short of expectations; risk of exchange rate fluctuations, etc.