2023 Results Exceed Our Expectations
The company announced its 2023 results: revenue increased 114% year on year to 2.12 billion yuan, phased: pre-IND and post-IND revenue increased 143%/96% year on year to 9.3 million/1.2 billion yuan. By region: North America/China/Europe, revenue of 850 million/660 million/50 million yuan, up 92%/116%/184% year on year. Net profit to mother increased 82% year over year to 280 million yuan, and adjusted net profit to mother increased 112% year over year to 410 million yuan.
Due to the rapid growth in the number of projects and the progress of the project pipeline, both revenue and profit for 2023 exceeded our expectations. The company raised its 2024 revenue guidance from 2.9 billion yuan to more than 3.1 billion yuan.
Development trends
The number of projects is growing rapidly, and post-clinical projects have increased significantly. As of 2023, the company has 143 comprehensive projects (94/110 in 2022/1H23), including 21 clinical phase II & III projects (10/16 in 2022/1H23); a total of 427 drug discovery projects (299/350 in 2022/1H23). In 2023, 50 comprehensive projects were added, of which 42/8 preclinical/clinical projects were added (33/2 were added in 2022, 17/0 were added in 1H23), and 5 new PPQ projects were added (including MNC and biotech customers; 1Q24 continues to be signed). Among them, the company expects a customer to submit a US BLA application this year. As the PPQ project progresses, we think the company will begin production for more commercial projects around 2026. Projects within the pipeline are progressing smoothly. In 2023, 36 projects advanced from drug discovery to the CMC stage, and 15 CMC molecules declared IND.
Due to strong downstream demand, the company raised its 2024 capital expenditure guidelines. As of 2023, the company has ongoing orders of US$580 million (2022/1H23 was US$320 million/US$410 million), and the company expects that orders by the end of 2023 will cover more than 60% of the 2024 revenue guidance. The company said that 4Q23 clearly felt the recovery of the global financing environment. Orders continued to be signed in 4Q23 and 1Q24, orders from all regions increased markedly, and there was a slight increase in prices in some overseas regions. The 2023 CAPEX of 530 million yuan was mainly used for the construction of the Wuxi plant. The first dual-function production line at the Wuxi plant was put into operation in November 2023; the company raised the 2024 CAPEX guidelines from 700-800 million yuan to 1.16 billion yuan, with 600 million/900 million yuan in China and Singapore respectively. The company expects the second dual-function production line and DP line at the Wuxi plant to be put into operation in 4Q24/2025; the Singapore plant will be launched in 2026, mainly for late stage and commercial production. We believe that as the monoclonal antibody production line starts production and climbs, the company's gross margin is expected to gradually increase in 2024.
Profit forecasting and valuation
The adjusted profit forecast for 2024 and 2025 remains unchanged. The current stock price corresponds to 28.0/16.1 times 2024/2025e adjusted P/E. Maintaining an outperforming industry rating, the target price was lowered by 27.5% to HK$29 based on the DCF model (WACC 12.1%, sustainable growth rate of 1.5%) due to increased capital expenditure and increased policy risk in the CXO sector of Hong Kong stocks, with 74.5% upside compared to the current stock price.
risks
Industry R&D spending has been cut, new projects have fallen short of expectations, the competitive landscape has deteriorated, and trade and policy risks.