In 2023, Yao Ming Kangde achieved revenue/net profit of 40.3 billion yuan/9.6 billion yuan, +2.5%/9.0% year-on-year.
In the chemical business sector, the TIDES New Molecule Platform continues to grow rapidly and is expected to become a medium- to long-term revenue growth point.
Maintain the purchase and lower the DCF target price to $66.31.
The 2023 results are in line with expectations: According to the company announcement, in 2023, Yao Ming Kangde achieved revenue/net profit of 40.3 billion yuan/9.6 billion yuan, +2.5%/9.0% year-on-year. The number of active customers increased by 1,200+ to 6,000+ year over year in 2023. In-hand orders were +16% year over year. The company estimates that revenue will reach 383-40.5 billion yuan in 2024. The 2024 non-IFRS net profit margin is expected to be the same as in 2023 (~ 26.9%). Meanwhile, the company expects free cash flow to reach $4 to 50 billion in 2024, which can be used for cash dividends and incentives to retain talent. The company decided to maintain a 30% cash dividend ratio. In 2023, a cash dividend of 9.8 yuan (total of 2.88 billion yuan) will be distributed for every 10 shares. We forecast a CAGR of 7.5%/7.8% for the company's revenue/net profit for 2023-26.
In the chemical business sector, the TIDES New Molecule Platform maintained rapid growth: the chemical business achieved revenue of 29.17 billion yuan in 2023, +1% year over year; excluding COVID-19 commercial projects, +36% year over year. Among them: 1) Small molecule drug discovery (R) has synthesized more than 420,000 compounds, becoming an important “traffic entry point” for downstream business. 2) Process R&D and production (D&M) achieved revenue of 21.62 billion yuan, which is basically the same as the previous year. The CDMO molecular pipeline added 1,255 molecules to 3,201 molecules in 2023. The pipeline includes 61 commercialized projects and 66 Phase III clinical programs. We believe these projects will drive revenue growth in the near future. The company's unique TIDES platform supports integrated services for various complex chemical conjugates (Oligo PeptiDeoligo Toxin, PDC, Peptide PMO, etc.). TIDES' revenue in 2023 was 3.41 billion yuan, +64% YoY; TIDES's on-hand orders +226% YoY. D&M served 140 customers, up 36% year on year; the number of service molecules was 267, up 41% year on year. According to the company's announcement, the production capacity expansion at the Changzhou and Taixing bases was put into use in January 2024, and the total volume of the peptide solid phase synthesis reactor increased to 32,000 liters (6,000 liters at the end of 2022).
We believe TIDES is expected to be a medium- to long-term revenue growth point.
The safety assessment and SMO business in the testing sector remained leading; the new molecule-related business in the biology sector drove growth: in 2023, the company's testing business achieved revenue of 6.54 billion yuan (+14% over the same period last year). Security Assessment and SMO maintained their leading positions with revenue +27% and 26% year over year. The biology business achieved revenue of 2.55 billion yuan (+3% year over year). Among them, the revenue of the new molecule category increased 26% year over year, and its share of revenue increased from 22.5% in 2022 to 27.5% in 2023. We believe revenue related to new capabilities and new technologies will continue to grow. Cell and gene therapy achieved revenue of $1.31 billion (the same as the previous year). The new drug development division achieved revenue of 730 million yuan (-25% year over year). The decline in revenue was mainly due to active iterative business upgrades. Three new drugs have been approved for marketing in 2023, and new drug applications have been submitted for two drugs. The company received its first share of pharmaceutical sales revenue in 2023.
Maintaining purchases and lowering the DCF target price to 66.31 yuan: In view of US policy uncertainty, we lowered our revenue forecast for the chemical business and other sectors. Our target price is 21x the 2024 P/E, which is roughly equivalent to 21x the comparable company average.
Risk warning: 1) The utilization rate of CDMO is lower than expected; 2) talent bottlenecks; 3) foreign exchange risk; 4) the Sino-US conflict may continue to escalate.