Key points of investment
Summary of the paragraph: The company achieved revenue of 7.825 billion yuan in 2023 (-23.7%, year-on-year growth rate, same below); net profit to mother of 2,269 billion yuan (-31.3%); net profit after deducting non-return to mother of 2.104 billion yuan (-34.9%); net operating cash flow of 3.55 billion yuan (+8.0%); performance is in line with expectations.
The small molecule business maintained high growth: the company's small molecule business achieved revenue of 6.62 billion yuan (-28.5%) in 2023, and achieved revenue of 4.200 billion yuan (+25.6%) after excluding the COVID-19 business; of these 1) commercial order revenue was 5.112 billion yuan, regular order revenue of 2,692 billion yuan (+47.1%), and confirmed revenue reached 40 commercial orders (flat year over year). Due to reduced chemical costs and process improvements, gross margin increased 9.53 pct to 60.07% year on year; 2) Clinical stage orders 100 million yuan, 386 confirmed revenue projects (+27), including 69 Phase III projects (+7).
Emerging business projects are being implemented at an accelerated pace, and the future is an important support: the company's emerging business revenue in 2023 was 1,199 million yuan (+20.4%), of which 1) large molecule business revenue was 410 million yuan (+8.8%), developed 74 new customers (+30), and undertook 80 new projects (+12), including 33 projects promoted to Phase II.
2) Oligonucleotides are an important future direction for the company. In 2023, it undertook 35 new projects (+10), completed 1 verification production project, and 1 verification production project was in progress; and 10 oligonucleotide pilot-commercial production lines were launched, with a synthetic production capacity of 500 Kg/year; 3) Pharmaceutical sector revenue increased 18.4% year on year, and overseas revenue increased 20.5% year on year; 4) Biotech completed in 2023, 156 formulations were ordered, and overseas orders increased 50% year on year; 4) Biotech Molecular CDMO business revenue increased 31.3% year over year, with 71 active projects, including 16 IND projects, 18 ADC projects, 3 AOC projects, and 2 BLA projects. 5) Synthetic biotechnology confirmed a 38.13% year-on-year increase in revenue, reached more than 70 new customers, and successfully delivered the first batch of production for the first IND project.
The GLP1 related CDMO business is a clear growth point in the future: with the release of the performance of Eli Lilly and Novo Nordisk Smeglutide, order demand maintains a high growth rate. Currently, there is a shortage of leading domestic peptide CDMO production capacity, and the company already has 103,000 L of solid phase synthesis capacity. It is expected that by the end of June 2024, the total solid phase synthesis production capacity will exceed 14,300 L, which can meet the commercial production needs of customers for solid phase peptides.
Continued development of customer diversification: In 2023, the company's revenue from multinational pharmaceutical companies was 4.99 billion yuan, regular order revenue was 2.57 billion yuan (+75.1%), and revenue from small pharmaceutical companies was 2.84 billion yuan (-1.5%). The number of active global customers has reached 1100. Regular revenue in the US market in 2023 was 2,847 billion yuan (+47.5%), and domestic customer revenue was 1.48 billion yuan (-5.3%).
Profit forecast and investment rating: Considering the pressure on the small-molecule CDMO industry, the completion of large COVID-19 order deliveries, etc., we lowered the company's net profit forecast for 2024-2025 from 23.8/3.06 billion yuan to 12.6/1.53 billion yuan. The estimated net profit for 2026 is 1.83 billion yuan, and the 2024-2026 P/E valuation is 25/21/18X, respectively. Based on the overall steady growth of the company's regular business and continued expansion of new business, GLP1 provides new performance growth; maintaining a “buy” rating.
Risk warning: Order delivery falls short of expectations, new business development falls short of expectations, exchange profit and loss risk, etc.