Incident: On March 27, 2024, Kanglong Chemical released its 2023 annual report. The company achieved annual revenue of 11.538 billion yuan, up 12.4% year on year; net profit to mother of 1,601 billion yuan, up 16.5% year on year; after deducting non-net profit of 1,514 billion yuan, up 6.5% year on year; adjusted net profit of 1.903 billion yuan, up 3.8% year on year. Looking at a single quarter, the company achieved revenue of 2,978 billion yuan, an increase of 4.0% year on year; net profit to mother of 462 million yuan, up 11.7% year on year; after deducting non-net profit of 431 million yuan, an increase of 18.4% year on year.
The core laboratory service sector is growing steadily, and emerging businesses such as clinical, macromolecules, and CGT are rapidly expanding.
By sector, (1) Laboratory service revenue was 6.66 billion yuan, up 9.4% year on year, of which bioscience revenue accounted for more than 51%. The company actively deployed new molecular fields such as small nucleic acids, peptides, ADC, and CGT; in 2023, it participated in 764 drug discovery projects, an increase of 17% over the same period last year. (2) CMC achieved revenue of 2,711 billion yuan, an increase of 12.6% over the previous year, of which approximately 85% of revenue came from drug discovery business customers. The number of pre-clinical and clinical phase I/II projects in the CDMO pipeline was 659 and 170, respectively, a decrease of 150 and 60 compared with the same period last year. The main ones were a phased slowdown in customer demand due to poor biomedical investment and financing. There were 29 process verification and commercialization stage projects, an increase of 14 over the previous year. As the pipeline progressed to a later stage, the average project revenue increased 37% year over year. (3) Clinical research service revenue was 1,737 billion yuan, up 24.7% year on year. Kanglong Clinical continued to integrate the collaborative superposition sector's revenue scale and increase gross margin by 5.59 pts to 17.1% year on year. Clinical CRO and SMO service projects reached 1,035 and more than 1,450, respectively, and the degree of digitalization of services, customer recognition and market share increased rapidly. (4) Macromolecule and CGT revenue of 425 million yuan, an increase of 21.2% over the previous year. Among them, CGT CDMO served 13 gene therapy projects and provided analytical testing services for 26 CGT projects, including 2 commercialization projects, and the emerging business grew rapidly.
The company continues to expand global production capacity to support business development, and expects revenue growth of 10% + in 24 years. In terms of laboratory services, the Ningbo Third Park is expected to be put into operation in 2024 to enhance experimental animal capabilities in safety assessment, pharmacology, etc.; construction of the Xi'an Park and Beijing Second Park continues. On the CMC side, the second phase of the Shaoxing plant plans to build a multi-functional production workshop for oligonucleotides and peptides, and to lay out a pharmaceutical factory in Singapore to improve global pharmaceutical CDMO service capabilities. In terms of macromolecules and CGT, the California Vivo Toxicology Research Center is expected to be put into operation in 2024 to support toxicological research of CGT products; expand the CGT CDMO laboratory and factory in Liverpool; and the Ningbo macromolecular drug development and production platform is expected to be partially put into operation in 2024 to begin undertaking macromolecular GMP production projects. Currently, global biomedical investment and financing continues to recover, and downstream customers have shown a recovery trend in demand. The company expects revenue growth of more than 10% in 2024.
Investment advice: Kanglong Chemical will build a full-process, integrated and international CXO service platform. Enriching the project pipeline will drive continuous business growth. We expect the company to achieve operating income of 127.05/146.13/16.77 billion yuan in 2024-2026, up 10.1%/15.0%/14.8% year-on-year respectively, and net profit to mother of 16.53/19.67/23.13 billion yuan, corresponding PE 22/19/16 times, maintaining the “recommended” rating.
Risk warning: risk of declining demand, risk of policy change, risk of increased competition, risk of overseas regulation, exchange rate risk, etc.