Key points of investment
Incident: The company achieved revenue of 7.384 billion yuan for the full year of 2023, up 4.21% year on year, net profit to mother of 2.025 billion yuan, up 0.91% year on year, net profit without return to mother, down 4.05% year on year, operating cash flow of 1150 million yuan, down 15.25% year on year; single Q4 achieved revenue of 1,734 billion yuan, up 3.22% year on year, net profit attributable to mother of 145 million yuan, down 63.86% year on year, due to changes in goodwill impairment, taxation, and fair value after deducting net profit of non-return to mother 279 million yuan, a year-on-year decrease of 19.74%; as of the end of the reporting period, the company's net new contract amount was 7.85 billion yuan, a year-on-year decrease of 18.8%. This was due to the sharp drop in handling fees for new orders. The cumulative amount of contracts to be executed was 14.08 billion yuan, an increase of 2.1% over the previous year. Performance fell short of expectations.
Business growth and profitability showed strong resilience and sustainability during the industry downturn: due to the COVID-19 pandemic and the decline in biomedical investment and financing, which had a certain impact on the industry, the company's business was affected, but the revenue side continued to grow slightly. By business, 1) Clinical trial technical service revenue was 4.168 billion yuan, up 1.04% year on year, gross profit was 1,592 billion yuan, up 2.58% year on year, gross margin was 38.21%, up 0.58 pct from the same period last year. The reason for the increase was improved work efficiency, completion of vaccine projects, and lower handling costs for suppliers. 2) Revenue from clinical trial-related services and laboratory services was $3.116 billion, up 8.63% year on year, gross profit was 1.247 billion yuan, down 0.10% year on year, gross margin was 38.79%, down 3.39 pct from the same period last year. This is due to the slowdown in revenue growth and reduction in gross margin of Fangda Holdings' gross margin, as well as the rapid growth rate of the field management and recruitment service business with low gross margin.
Domestic business is growing steadily, and overseas platform capabilities are constantly being strengthened, and it is expected to become a new growth point: by the end of 2023, 752 drug clinical trial projects were being implemented, an increase of 10.59% over the previous year.
In the domestic market, in 2023, the company served the research and development of 22 Class 1 new drugs already marketed in China; overseas markets: clinical trial service revenue and in-hand orders increased significantly in the US; cooperated with more than 500 institutions in 45 states to establish new medical device teams in EMEA to support more than 10 device clinical research projects. The European team completed the business and system integration of MartiFarm in Croatia and Opera in Romania, forming an integrated service platform; The Korean team expanded, with more than 100 ongoing clinical projects; 20 new cooperative projects were added in Australia. At the same time, Fonda of America completed the acquisition of Nucro-Technics to improve the level of analytical chemistry, microbiology, toxicology, bioanalysis, and sample storage and stability testing services. The global layout of the company's overseas business is accelerating.
Profit forecast and investment rating: Considering changes in the industry and reduced fluctuations in investment income, we expect the company's revenue for 2024-2026 to be 80.15/92.38/10.91 billion yuan, and net profit to mother of 21.65/25.55/3.156 billion yuan. The current market capitalization corresponds to 2024-2026 PE 21/18/15 times, respectively. Considering the company's relatively low valuation and the increase in overseas business, coverage was given a “buy” rating for the first time.
Risk warning: New drug development falls short of expected risks, industry competition increases risks, and investment returns fluctuate.