Maintain an “Overweight” rating. The company released its annual report, with operating income of 17.034 billion yuan (+11.6%), net profit to mother of 3.40 billion yuan (-23.1%), adjusted net profit of 4.950 billion yuan (-2.0%); due to negative impacts of production capacity climbing and operational efficiency improvements brought about by WBS, gross margin was 40.1% (-3.9 pct); considering geopolitical risks and the potential subsequent impact of the Biological Act, we expect net profit to be 3,544/44.91/5.793 billion yuan in 2024-2026 ( 5.4%/20.5%/24.5%), estimated adjusted net profit of $50.30/60.62/7.467 billion (1.6%/20.5%/23.2%), reduced 2024-2025 EPS (adjusted net profit) of $1.18/1.42 (previously $1.29/1.65), added 2026 EPS of $1.75, and lowered the target price to HK$20.5 (-17.3), corresponding to PE (adjusted net profit) of 16X in 2024, giving a “gain” rating.
The number of new projects has exceeded expectations, and non-COVID-19 businesses are developing strongly. On a phased basis, pre-clinical project revenue is 5.402 billion yuan (+9.2%). Since most of the new projects signed in Q4 are early-stage projects, revenue growth is expected to resume in the future. Benefiting from the “win molecule” strategy, early-clinical projects earned $3,616 billion (+12.7%). The revenue for late-stage projects (Phase III+commercialization) was 7.732 billion yuan (+12.8%), of which non-COVID-19 projects increased significantly by 101.7% year over year. On a quarterly basis, the total number of new 2023Q1-Q4 projects was 8/38/15/71, respectively. The new projects in Q4 exceeded market expectations. As of March 22, 2024, 25 new projects were added, and the recovery continued. Outstanding orders of US$20.59 billion, and outstanding orders of approximately US$3.85 billion within three years will support the company's short-term revenue growth.
Based on the uncertainty of the external environment, the company expects revenue to be close to the industry level in 2024, achieving 5%-10% growth, and the non-COVID-19 business is expected to grow by 8%-14%.
Overseas production capacity has been launched one after another, and the global supply chain ensures long-term development. Europe's share of revenue reached 30.2% (+13.5pct), up 172.4% year over year. North America's revenue share reached 47.7% (-8.2pct), up 20.2% year on year; production capacity in the Irish plant is expected to reach break-even in 2024, one year ahead of schedule. 70% of the projects were obtained through “Win Molecules”. Most of the projects are already on the market, and production capacity is close to full production in 2025. The German and US plants in Massachusetts are expected to be put into use in 2025, and the Singapore plant is expected to be put into use in 2026, which is expected to open up room for long-term development.
Catalysts: Commercial production orders have been implemented, and investment and financing have continued to recover;? Risk warning: risk of policy changes; risk of geopolitical friction; risk of foreign exchange fluctuations.