Event: The company released its 2023 annual report. In 2023, the company achieved operating income of 17.051 billion yuan, an increase of 11.5% year on year; net profit to mother was 3.340 billion yuan, down 23.1% year on year; adjusted non-IFRS net profit to mother was 4.950 billion yuan, a slight decrease of 2.0% year on year.
Performance continued to be steady, and revenue increased nearly 40% year over year, excluding the impact of COVID-19. We expect revenue to grow faster than profit mainly due to: ① the continued implementation of the company's new production capacity has led to an increase in depreciation and amortization of fixed assets, and gross margin is greatly disrupted; ② the rapid decline in COVID-19 projects has caused slight fluctuations in capacity utilization. Looking at the revenue structure, non-COVID-19 revenue in 2023 was about 16.51 billion yuan, an increase of 37.7% over the previous year. In addition, looking at the project stage, pre-clinical revenue in 2023 was 5.40 billion yuan, up 9.2% year on year, early clinical revenue was 3.62 billion yuan, up 12.7% year on year, post-clinical and commercialization revenue was 7.73 billion yuan, up 12.8% year on year, and revenue increased 101.7% in the post-clinical and commercialization stages after excluding the impact of COVID-19, and the growth was even stronger. In terms of profitability, the gross margin in 2023 is about 40.1% (-3.9 pp), net margin is about 21.0% (-8.8 pp), sales expenses ratio is about 1.7% (+0.7 pp), management expenses ratio is about 8.8% (+0.5 pp), R&D expenses rate is about 4.6% (+0.1 pp), and the period cost ratio is about 16.0% (+1.8 pp).
The CRDMO business model continues to be implemented, and back-end CMO projects are expected to continue to expand. The company adheres to the molecular strategy of following and winning. As of December 31, 2023, 61 pre-clinical to clinical projects and 5 phase III to commercialization projects were extended in 2023, and 18 clinical and commercial projects were introduced externally. The overall number of comprehensive projects reached 698 (+18.7% compared with 2022), of which 51 phase III projects (+37.8%) and 24 commercialization projects (+41.2%).
Furthermore, due to the rapid growth in the number of projects, the company's on-hand orders continue to rise. It is estimated that the total number of completed orders will reach US$3.85 billion (+6.3%) in the next three years, and the total number of outstanding orders is approximately US$20.59 billion (+0.1%), of which US$13.40 billion is outstanding for service orders.
XDC, vaccine, and dual-antibody platforms are gradually bringing new momentum to growth. XDC: The company's XDC drug development platform undertook 143 ADC comprehensive CMC projects in 2023 (+52.1%) with the technical advantages of WuXiDar4, including 5 PPQ projects. It is expected that new drug marketing applications (BLA) will be submitted soon, and commercialization can be expected; Wuxi Vaccine:
25 vaccine projects are being implemented (+25.0%), covering 19 non-COVID-19 vaccines, and are expected to continue to increase performance.
Dual antibodies: Undertaking 114 projects (+15.2%), 4 projects have entered clinical phase I, 5 projects are in the CMC stage, and 3 projects are in the PCC stage, which is expected to gradually contribute to the new volume.
Profit forecast and investment advice: Considering that although the number of the company's front-end projects continues to increase, due to fluctuations in global investment and financing in 2023 and the recovery of the global pandemic, the company's CDO and COVID-19 orders may decrease, and production capacity investment may increase in recent years, we adjust the company's profit forecast. We expect the company's revenue to 2024-2026 to 179.8, 207.5, and 24.52 billion yuan (about 19.34 billion yuan and 25.13 billion yuan before 2024-2025), up 5.6%, 15.4%, and 18.2% year-on-year Net profit from parent was $3.52, 43.0, and 5.30 billion yuan (approximately $41.4 billion and $5.40 billion before the adjustment period 2024-2025), up 3.6%, 21.9%, and 23.3% year-on-year. The company is a scarce target in the global biopharmaceutical outsourcing service industry. The company's advantages are prominent. In the future, as existing projects are commercialized and platforms such as XDC, vaccine, and dual-antibody platforms are being implemented at an accelerated pace, the future can be expected, maintaining a “buy” rating.
Risk warning event: The public information used in the research report may be at risk of information being delayed or not updated in a timely manner, investment in biopharmaceutical R&D falling short of expectations, and loss of core technical personnel.