2023 results are in line with our expectations
The company announced its 2023 results: revenue of 17 billion yuan, up 11.6% year on year, of which revenue from non-COVID-19 projects increased 37.7% year on year to 16.5 billion yuan; net profit to mother was 3.4 billion yuan, down 23.1% year on year; adjusted net profit to mother was 4.70 billion yuan, down 4.6% year on year. It met our expectations.
Based on the uncertainty of the external environment, the company expects revenue growth of 5%-10% year-on-year in 2024, and 8%-14% year-on-year growth in non-COVID-19 revenue.
Development trends
Order signing has improved markedly since 4Q23. In 2023, the company added 132 comprehensive projects (including 50 conjugated drugs) and added 16 new clinical projects (including 8 conjugated drugs). In 2023, 8/38/15/71 projects were added each quarter, and the recovery in investment and financing in 4Q23 drove a strong rebound in the number of new projects. The company's results will indicate 25 new projects as of March 24, 2024, of which 12-13 are US customers by region, and about 11 are conjugated drugs by molecular type. The company maintains its January guidance on the number of new projects added in 2024 to 110. By the end of 2023, 1) uncompleted service orders were US$20.6 billion, the same as the previous year. We estimate that new orders in 2023 were about US$2.5 billion; 2) Uncompleted orders within 3 years were US$3.85 billion, an increase of 6% over the previous year.
European revenue is growing strongly, and the basic business market is resilient. 2023 Revenue: 1) By region: North America/Europe/China/Other regions with revenue of 8.1 billion/ 5.1 billion/ 3.1 billion yuan (-5%/+102%/-16%/+38% YoY, non-COVID-19 revenue respectively +20%/+172%/-1%/+38% YoY), we believe that strong growth in Europe indicates the global recognition of the company's brand. 2) By stage: Preclinical/early clinical/clinical phase III and commercial revenue increased 9.2%/12.7%/12.8% year over year to 5.4/3.6 billion/ 7.7 billion yuan. The company said that CRO and CDO business order cycles are short and have a global layout, and are less affected by geopolitics. CMO is more sticky to follow molecular projects, and future CMO wins of molecular projects may have a slight impact. Milestones in the company's CRO business in 2023 and revenue from research services totaled $87 million, with 55 projects having a low single-digit sales share.
Promote overseas production capacity layout according to plan. Capital expenditure of 4.1 billion yuan in 2023 is mainly used to expand production capacity in Europe and the US; the company guides capital expenditure of 5 billion yuan in 2024 and production capacity under construction progresses as scheduled. Ireland's production capacity climbed better than expected, and the company expects breakeven in 2024. We expect Germany's 12,000 liter expansion/US 36,000 litres/Singapore's first phase of 60,000 litres production capacity to be put into operation in 2024-2026.
Profit forecasting and valuation
Due to uncertainty in the external environment, the 2024/2025 adjusted EPS forecast was lowered by 14%/25% to 1.09/1.24 yuan. The current stock price corresponds to 12.0/9.8 times the 2024/2025 adjusted P/E. Maintaining an outperforming industry rating, due to optimism about the basic market of the company's business, the target price was only slightly lowered by 8% to HK$23, corresponding to 19.3/15.8x 2024/2025E adjusted P/E, with 61% upside compared to the current stock price.
risks
Geopolitical risks, industry R&D spending cuts, project progress falls short of expectations, and the competitive landscape deteriorates.