2023 results are in line with our expectations
The company announced its 2023 results: revenue of 7.825 billion yuan, -23.7%; excluding the impact of large orders, revenue of 5.405 billion yuan, +24.4% year on year; net profit to mother of 2,269 billion yuan, adjusted net profit of 2.02 billion yuan, net profit of 210 million yuan; in line with our expectations.
Development trends
Small molecule CDMO: revenue growth from commercial projects is strong, and clinical project reserves are abundant. In 2023, the company's small molecule, CDMO, achieved revenue of 6.620 billion yuan, and revenue of 4.200 billion yuan after excluding large orders, which was +25.6% year-on-year, with steady growth. 1) Commercialization projects: Revenue of 5.112 billion yuan, excluding the impact of large orders, revenue of 2,693 billion yuan, +47.13% year over year. Revenue from commercial projects was +7.46ppt year-on-year at a constant exchange rate, mainly benefiting from higher gross margin, exchange rate and efficiency improvements for large orders delivered later. 2) Clinical projects: Revenue of 1,507 billion yuan. Excluding specific antiviral projects, the impact was basically the same, mainly due to increased competition in the industry. There are 386 projects (+27 compared to year), including 69 clinical phase III (+7 compared to year). The project reserves are abundant. At the same time, the company is also actively developing and reserving potentially major projects. Currently, phase III clinical projects involve many popular and major drug targets. By the end of 2023, the company's on-hand orders amounted to $884 million.
Emerging business: Formulations and biomacromolecules maintain a positive trend. In 2023, revenue from the emerging services business was 1,199 billion yuan, +20.42% year over year, gross profit margin was 26.48%, -7.20ppt year on year. The decline in gross margin was mainly due to the continued sluggish domestic and foreign biomedical investment and financing environment, weakening demand and increased competition. By sector: 1) Formulations: Revenue +18.36% YoY, of which overseas revenue was +20.51% YoY. New customer orders in 2023 accounted for 44%, and the number of signed orders was +50% YoY. 2) Biomacromolecule CDMO: Revenue +31.29% YoY. The first dual-antibody ADC order was delivered in 2023, and the first FDA IND project. As of the end of 2023, there were 18 ADC projects, 3 AOC projects, and 2 BLA projects.
The export of new technology ushered in a breakthrough, and the synthetic biotechnology sector continued to advance. In 2023, relying on technical advantages and continuous production experience, the company undertook 19 new foreign technology export projects, worth more than 250 million yuan, and the Continuous Science and Technology Center (CFCT) implemented 68 production projects. Synthetic biology has reached 70+ new customers and successfully completed the first batch of production and delivery for the first IND project.
Profit forecasting and valuation
Considering that emerging businesses account for a high share of domestic demand and that the industry is still in an adjustment period, we lowered net profit of 50.6% in 2024 to 1,377 billion yuan, while introducing net profit of 2025 to 1,723 billion yuan. The current A share price corresponds to the 2024/2025 price-earnings ratio of 23.1 times/18.4 times.
Maintaining an outperforming industry rating, taking into account profit forecast adjustments and the company's new technology output has a lot of room for long-term growth. We lowered our target price by 34.0% to 120.50 yuan, which corresponds to 32.3 times the 2024 price-earnings ratio and 25.8 times the 2025 price-earnings ratio. There is 40.1% upside compared to the current stock price.
risks
New business expansion falls short of expectations, geopolitics, exchange rate fluctuations, capacity utilization falls short of expectations, and order expansion falls short of expectations.