Announcement: Yao Ming Kangde released its 2023 annual report.
Comment:
The revenue side excluded COVID-19 commercialization projects and maintained a rapid growth trend. In 2023, the company's revenue was 40.3 billion yuan, up 2.5% year on year. Excluding COVID-19 commercialization projects, revenue increased 25.6% year over year. Net profit attributable to mother was 9.6 billion yuan, up 9.0% year on year; net profit without return to mother was 9.7 billion yuan, up 16.8% year on year; adjusted non-IFRS net profit to mother was 10.9 billion yuan, up 15.5% year on year. In the fourth quarter of 2023, the company's revenue was 10.08 billion yuan, down 1.5% year on year, and net profit to mother was 1.53 billion yuan, up 6.6% year on year, after deducting non-net profit of 2.04 billion yuan, up 0.5% year on year.
Operating conditions by business segment in 2023:
(1) Chemical business: Revenue of 29.17 billion yuan, up 1.1% year on year. Excluding specific commercial production projects, the revenue of the chemical business segment increased strongly by 36.1% year on year. The CDMO business for process R&D and production grew strongly. D&M's business revenue was 21.62 billion yuan. Excluding specific commercial production projects, D&M's business revenue grew 55.1% year over year. By the end of 2023, the total number of D&M molecular pipelines reached 3,201, including 61 commercialized projects and 66 clinical phase III projects, of which a total of 20 commercialized and clinical phase III projects were added. The TIDES business continued to grow. In 2023, TIDES business revenue reached 3.41 billion yuan, up 64.4% year-on-year. By the end of 2023, TIDES's on-hand orders increased significantly by 226% year over year. 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, a year-on-year increase of 14.4%. Revenue from laboratory analysis and testing services was $4.78 billion, up 15.3% year over year. Among them, revenue from the drug safety evaluation business increased 27.3% year over year.
Clinical CRO and SMO business revenue was 1.76 billion yuan, up 11.8% year on year, of which SMO business increased 26.1% year over year.
(3) Biology business: Revenue of 2.55 billion yuan, a year-on-year increase of 3.1%. In 2023, revenue related to new molecular types in the biology business segment increased 26% year over year, contributing 27.5% of biology business revenue. As an important “traffic entry point” for the company's downstream business, it continued to contribute more than 20% of the company's new customers in 2023.
(4) High-end treatment CTDMO business: revenue of 1.31 billion yuan, an increase of 0.1% over the previous year. By the end of 2023, process development, testing and production services were provided for a total of 64 projects, including 1 commercialization project, 5 clinical phase III programs, 9 clinical phase II programs, and 49 pre-clinical and clinical phase I programs. In February 2024, the second commercialization project was approved.
(5) Domestic New Drug Research and Development Service Department: Revenue of 730 million yuan, a year-on-year decrease of 25.1% due to active iterative business upgrades. In 2023, 3 new drugs developed by the company for customers have been approved for marketing. 2 are innovative oral antiviral drugs and 1 is a drug to treat tumors. The company continues to receive a share of revenue from the sales of new drugs already on the market. Currently, the company has 2 other drugs in the marketing application stage.
The company continues to implement a “long tail” strategy and continuously increases the share of major pharmaceutical companies. In 2023, revenue from the top 20 global pharmaceutical companies continued to grow at a rapid rate of 16.11 billion yuan, with a year-on-year increase of 44% after excluding specific commercial production projects; revenue from other global customers continued to grow, increasing 18% year-on-year to 24.23 billion yuan. The company's unique position across the drug development value chain enables the company to “follow customers”, “follow molecules” and achieve greater synergy effects. In 2023, customers using the services of the company's various business divisions contributed 37.47 billion yuan in revenue, a year-on-year increase of 27% after excluding specific commercial production projects, accounting for a further increase of 93% of the company's revenue.
Profit forecast. We expect the CRO and CDMO industry to continue to rise. The company will give full play to the advantages of an “integrated, end-to-end” R&D service platform to empower customers in terms of capacity and scale, and is expected to achieve overall growth in the entire line of business. Considering the uncertainty of the external environment and the response from global biomedical investment and financing to reach the company's performance, we lowered our profit forecast. The estimated EPS for 2024-2026 is 3.26, 3.67, and 4.17 yuan, respectively (the original forecast for 24-25 was 3.78 and 4.40 yuan). As a leader in internationalization in the industry, based on comparable company valuations, we believe that it is more reasonable (unchanged) to give 25 times PE in 24 years, corresponding to a target price of 81.60 yuan (-14%), maintaining a “superior to the market” rating.
Risk warning. The escalation of geopolitical risks between China and the US has limited overseas business, and the risk of business falling short of expectations; the risk of worsening industry competition; the risk of falling R&D expenses for pharmaceutical companies; the risk of exchange rate fluctuations; and loss of core technical personnel.