occurrences

The company announced 2023 results: in 2023, operating income of 717 million yuan (+34%), overseas revenue of 408 million yuan (+66%), gross margin of 70.6% (+2.8pp), net profit loss of 383 million yuan (net profit loss of 602 million yuan for the same period in '22), net profit loss of 406 million yuan (net profit loss of 659 million yuan for the same period of '22), and R&D investment of 474 million yuan (-32%).

reviews

The US market continues to grow rapidly. In 2023, China's revenue was 310 million yuan, accounting for 43%; overseas revenue was 410 million yuan (+61.1%), accounting for 57%, of which the US region had revenue of 300 million yuan (+68.3%).

Sales revenue in the pre-clinical CRO segment grew rapidly, production capacity expanded, and product lines increased. Pre-clinical CRO's annual revenue was $541 million (+33%), with a gross profit margin of 67%: model animal sales revenue of 273 million yuan (+61%); pharmacological efficacy sales revenue of 193 million yuan (+10%); and gene editing sales revenue of 74 million yuan (+22%). The new Boston facility has been put into use and is three times larger than the original facility. More than 3100 innovative animal models have been developed.

Qianmu Wan has completed phased research and development, and the number of cooperative projects continues to increase. The antibody molecule cooperative business revenue was 176 million yuan (+39%), and the gross profit margin was 82%. By the end of 2023, the company had reached 103 cooperation projects with over 50 domestic and foreign pharmaceutical companies, and signed more than 60 new contracts, of which nearly 30 had been authorized. The partners were nearly 10 large and medium-sized overseas pharmaceutical companies, including Merck, Gilead, and Neurocrine from Germany.

The cooperative development of clinical pipelines is progressing at an accelerated pace. As of December 31, 2023, 5 of the 6 clinical-stage drug molecules have reached cooperation, and 2 of the 5 preclinical PCC molecules have reached cooperation. YH001 (advanced to US clinical phase 1/2, authorized TRACON), YH002 (promoting international multi-center clinical phase 1, authorized Syncromune), YH003 (promoting international multi-center clinical phase 2a, authorizing Syncromune) YH005-ADC (promoted to Phase 1 clinical trial in China, authorized by the FDA, authorized Rongchang), YH008 (advanced to phase 1 clinical trial in China, authorized Microchip), YH012 (HER2/TROP2 dual antibody ADC, pre-clinical research, authorized Radiance Biopharma), YH013 (EGFR/MET dual antibody ADC, preclinical research, authorized Dorma Pharmaceuticals)

valuations

We expect Baiosetu's 2024-2026 revenue to be 9.1 (previous value: 9.8), 11.3 (previous value: 12.8), and 1.36 billion yuan, respectively, with year-on-year growth rates of 27.6%, 23.2%, and 20.4%; net profit to mother of -0.89 (previous value was -2.16), 0.98 (previous value was -0.29), and 182 million yuan, respectively.

Using a segmented valuation method, we gave the pre-clinical CRO business a valuation of 3 billion yuan in 2024, a valuation of 1.5 billion yuan for the company's antibody development business, and a total valuation of 6 billion yuan for the three business segments of pre-clinical CRO, antibody development, and self-developed pipeline. Using the RMB exchange rate of 1.08 to HKD, we gave Baiosetu a target price of HK$16.25 (HK$32.9 before the target price), maintaining the “superior to the market” rating.

risks

Geopolitical risks, industry competition increases risk, risk of private pipeline R&D failure, and risk of global biomedical investment and financing decline.