2023 results are in line with our expectations
The company announced its 2023 results: revenue of 11.538 billion yuan, +12.4% year on year; net profit to mother of 1,601 billion yuan, +16.5% year over year; adjusted net profit of 1,903 billion yuan, +3.8% year on year; deducted non-net profit of 1,514 billion yuan, +6.5% year over year. After deducting changes in the fair value of biological assets, adjusted net profit was +11.4% YoY; in line with our expectations.
Development trends
Laboratory services maintain their leading edge and actively explore opportunities in new fields. In 2023, the company's laboratory service revenue was 6.66 billion yuan, +9.38% year over year. A total of 764 drug discovery projects were involved, +17% over the same period, and the bioscience business accounted for more than 51% of revenue. The company still showed outstanding competitiveness against the backdrop of a temporary slowdown in industry demand. The company expects the Ningbo Third Park to be gradually put into use in 2024, and service capabilities in animal experiments such as drug safety evaluation and drug metabolism will be further strengthened. At the same time, the company has further strengthened its bioscience service capabilities for new molecules such as oligonucleotides, peptides, antibodies, ADCs, and cell and gene therapy.
The proportion of small-molecule CDMO late-stage projects has increased, and it is expected that capacity utilization will increase. In 2023, the company had 29 small-molecule CDMO process verification and commercialization phase projects and 27 clinical phase III projects, an increase of 14 and 3, respectively. The average project revenue was +37% year-on-year, and the project structure was further optimized.
In May 2023, the Ningbo pharmaceutical production workshop was first inspected by the National Drug Administration before marketing. There were no major defects, which verified the company's quality system and cGMP commercial production capacity. In 2023, the company participated in investing in PharmaGend in Singapore to further enrich the global production capacity layout.
We look forward to the development of macromolecule and cell and gene therapy businesses. In 2023, the company's macromolecule and cell and gene therapy business revenue was 425 million yuan, +21.06% over the same period last year. More than 25% of revenue came from internal pre-clinical research and drug safety evaluation project conversion. The US laboratory added 15 new customers in 2023, providing a total of 26 efficacy assay and release services for cell and gene therapy projects at different stages, including 13 clinical projects and 2 commercialization projects. The company expects that the Ningbo macromolecule drug development and production service platform will be partially put into use in 2024, and will gradually begin to undertake GMP production service projects.
Profit forecasting and valuation
The profit forecast for 2024 and 2025 remains unchanged. The current A share price corresponds to the 2024/2025 price-earnings ratio of 20.1 times/16.6 times. The current H share price corresponds to the 2024/2025 price-earnings ratio of 8.5 times/7.0 times.
A-shares remain outperforming the industry rating and target price of 28.60 yuan, corresponding to 28.5 times the price-earnings ratio of 2024 and 23.5 times the price-earnings ratio of 2025, with 41.6% upside compared to the current stock price. H shares remain outperforming the industry rating and the target price of HK$13.65, corresponding to 12.6 times the 2024 price-earnings ratio and 10.3 times the 2025 price-earnings ratio, with 47.3% upside compared to the current stock price.
risks
Risk of exchange rate fluctuations, risk of new drug development, geopolitical risk, risk of production capacity utilization falling short of expectations.