Incident: The company released its 2023 annual report. The full year of 2023 achieved operating income of 40.341 billion yuan, an increase of 2.5% year on year; realized net profit of 9.607 billion yuan, up 9.0% year on year; realized net profit without return to mother of 9.748 billion yuan, an increase of 16.8% year on year.
Comment:
Regular business continued to grow steadily, and abundant on-hand orders contributed to 24-year performance. The company continues to strengthen the integrated CRDMO and CTDMO business models, and the integrated enabling platform continues to bring output results: revenue from commercialization projects excluding COVID-19 was +25.6% year-on-year in 2023 (+23.4% in the first three quarters). The company's business in Europe and the US continued to grow steadily: during the reporting period, revenue in the US region was 26.13 billion yuan, excluding COVID-19, which increased 42% year on year; revenue in Europe was 4.7 billion yuan, up 12% year on year. Customer and order development continued to gain strength. More than 1,200 new customers were added during the reporting period, excluding COVID-19 commercialization projects, and active orders were +18%, laying a good foundation for the company's medium- to long-term performance growth. According to the company's outlook, revenue for 2024 is expected to reach 383-40.5 billion yuan, and is expected to reach +2.7% to 8.6% after excluding COVID-19 projects.
WuXi Chemistry has driven the company's continued growth in performance, and the TIDES business has entered a period of acceleration. By section, in 2023, the company WuXi Chemistry/WuXi Testing/WuXi Biology/WuXi ATU/ WuXi DDSU achieved revenue of 29.17 billion yuan/6.54 billion yuan/2.55 billion yuan/1.31 billion yuan/7.3 billion yuan, respectively, up 1.1%/+14.4%/+3.1%/+0.1%/-25.1%, respectively. WuxiChemistry is the main contributor to the company's revenue. Excluding COVID-19 commercialization projects, the year-on-year increase for the full year of 2023 was 36.1%. Among them, process development and production (D&M) services achieved revenue of 21.62 billion yuan (-0.1%, excluding COVID-19 +55.1%). The TIDES business continues to expand rapidly, achieving annual revenue of 3.41 billion yuan (+64.4%). By the end of 2023, the TIDES business had increased its production capacity expansion project in Changzhou and Taixing. The total volume of the polypeptide solid phase synthesis reactor was raised to 32000L (+344%), and the number of oligonucleotide and peptide “D&M” molecules increased to 267 (+41%). As production capacity is released and customer pipelines advance, we expect TIDES business to continue to grow rapidly in the next few years.
Profitability continues to increase. The company's gross profit margin, net profit margin, net profit margin, and adjusted non-IFRS net profit margin for the full year of 2023 were 41.2%/24.1%/24.2%/26.9%, respectively, +3.9/1.4/3.2 /3.0pct, respectively. In addition to the positive contribution of the exchange rate, it mainly benefited from the company's favorable combination and efficiency improvements, as well as the full recovery of clinical-related business. Looking ahead to 2024, the company will continue to improve production and operation efficiency. After considering the rise in new production capacity and the impact of exchange rates, the adjusted non-IFRS net interest rate level is expected to remain stable throughout the year.
Profit forecast: According to the company's latest business situation, we have adjusted our previous profit forecast and increased the 2026 profit forecast. We expect that in 2024-2026, the company's revenue will be 40.155 billion yuan/46.502 billion yuan/53.078 billion yuan, with year-on-year growth rates of -0.5%/15.8%/14.1%, respectively, and net profit to mother of 9.629 billion yuan/11.083 billion yuan/12.654 billion yuan, respectively, with year-on-year growth rates of 0.2%/15.1%/14.2% respectively. The current closing price is 14/13/11 times PE, respectively. The company is a leading CRDMO enterprise with global competitiveness. The business coverage is comprehensive, and the long-term trend of the industry is still improving. With the gradual release of new production capacity and the volume after the customer pipeline is promoted, the TIDES business enters a new growth curve for the company, which is expected to bring continuous growth to the company and maintain a “buy” rating.
Risk warning: Customer order execution and market development fell short of expectations; industry demand declined; industry competition intensified; policy risks; overseas regulatory risks; risk of exchange rate fluctuations.