Incident: On March 25, 2024, Pharmaceutical Federation released its 2023 annual report. The company achieved annual sales revenue of 2,124 billion yuan, a strong year-on-year increase of 114.4%, gross profit of 560 million yuan, a year-on-year increase of 114.3%, net profit of 284 million yuan, an increase of 82.1% year-on-year, and adjusted net profit of 412 million yuan, an increase of 112.1% year-on-year. The performance exceeded expectations.
Newly signed projects and funnel pipelines continue to grow significantly, and post-clinical and PPQ projects reserve commercial potential.
50 new comprehensive projects were signed throughout the year, bringing the total number to 143; of these, 13 clinical phase II projects (+6 compared to the same period last year) and 8 phase III projects (+5 compared to the same period last year), including 5 production process verification (PPQ) projects, have been scheduled at the Wuxi base. The new drug marketing application BLA will soon be submitted, and future back-end projects will contribute more revenue. The company adheres to the development strategy of following and winning molecules, transferred a total of 47 external projects to the company pipeline, and helped global customers submit IND applications for 15 new ADC drugs in 2023. In addition to traditional ADC projects, the company also serves multiple XDC projects. The ADC and XDC integrated projects are 129 and 14, respectively, with revenue of 1,888 million yuan (+106.6%) and 236 million yuan (212.5%), covering various molecular types such as RDC, PDC, and PEG, and the bioconjugate drug pipeline is diversifying.
The Wuxi base has achieved a one-stop production layout, and commercial production capacity in Singapore is under construction. The Wuxi base was put into operation in September and December 2023, with dual-function production lines and 1000-class connectors and payload facilities. It realized a one-stop layout for the four core ADC segments, including antibody intermediates, payload connectors, conjugated stock solutions, and conjugated preparations, to better simplify the supply chain of conjugated drugs, greatly shorten the production cycle, and ensure quality. The pace of future capacity construction:
(1) Production capacity expansion at the Wuxi base and construction of the second mAB/DS dual-function production line and DP production line, which is expected to be launched in Q4 2024; (2) The Singapore base has already started construction and is expected to be put into operation in 2026. 1 mAB/DS dual-function production line, 1 DS production line and 1 DP production line are planned to meet customer clinical and commercial production needs. The company expects CAPEX to grow significantly to $1.55 billion in 2024, mainly for the construction of the Singapore base.
The number of on-hand orders and customers continues to increase, and the customer structure is diversified. By the end of 2023, the company had orders of 579 million US dollars, a growth rate of 81.9%; the number of customers was 345, an increase of 30.2% over the previous year. The company has cooperated with 6 of the world's top 10 pharmaceutical companies, accounting for 24% of the company's total revenue, covering major pharmaceutical companies such as Merck, Roche, and Eli Lilly, as well as innovative Biotechs such as Columbaix and Yingen Biotech. By region, revenue growth rates in North America, China, and Europe were 91%, 116%, and 184% respectively in 2023, accounting for 40.1%, 31.1%, and 23.4%. Customer revenue in many regions achieved strong growth.
Investment advice: Pharmaceutical Federation is the world's leading one-stop ADC CRDMO leader. We expect the company to achieve operating revenue of 32.00/47.03/6.726 billion yuan in 2024-2026, an increase of 50.7%/47.0%/43.0% year-on-year, and net profit of 5.60/9.09/1,371 billion yuan, corresponding to PE of 33/20/13 times, maintaining the “recommended” rating.
Risk warning: Demand decline risk, technology iteration risk, business expansion risk, market competition risk, overseas expansion and business risk, etc.