Core views
In 2023, the company's CDMO segment achieved steady growth of 19.4%, and the number of pipeline projects continued to increase, reaching 32 commercialization projects. Although the API sector was under pressure in the short term due to increased competition in the industry, the company accelerated the integrated API and formulation business, completed the handover of Ruihua's Zhongshan plant in 23, introduced more than 20 new customers, and successfully undertook many integrated projects. As a leading CDMO company, the company adheres to the strategy of “deepening” big customers and “expanding” emerging customers, and the number of customers/projects has grown steadily.
Looking ahead to 24, the API sector is expected to gradually recover steadily, and the CDMO sector to maintain steady growth. At the same time, with the establishment of the company's overseas CRO platform and continuous drainage, the company's development is expected to accelerate further.
occurrences
Company Announces 2023 Full Year Results
On April 8, the company announced its 2023 annual results. In 2023, the company achieved revenue of 5.52 billion yuan, an increase of 1.4% year on year; realized net profit of 1.03 billion yuan, up 12.2% year on year; net profit after deducting non-return to mother was 1.02 billion yuan, up 10.5% year on year. In Q4 alone, the company achieved operating income of 950 million yuan, a year-on-year decrease of 11.7%; realized net profit of 66.49 million yuan, a year-on-year decrease of 62.6%; net profit without return to mother was 72.68 million yuan, a year-on-year decrease of 55.7%.
Brief review
CDMO is in line with expectations, and APIs are under pressure in the short term
23 For the full year, the company achieved revenue of 5.52 billion yuan, an increase of 1.4% year on year; realized profit due to mother of 1.03 billion yuan, an increase of 12.2% year on year; net profit after deducting non-return to mother was 1.02 billion yuan, an increase of 10.5% year on year. The faster increase in profit than revenue is mainly due to an improvement in gross margin due to the company's increased profitability. In Q4 alone, the company achieved operating income of 950 million yuan, a year-on-year decrease of 11.7%; realized net profit of 66.49 million yuan, a year-on-year decrease of 62.6%; net profit after deduction of 72.68 million yuan, a year-on-year decrease of 55.7%. The decline in revenue and profit in the single quarter was mainly affected by increased competition in the API sector, which was clearly affected by the decline in revenue.
In '23, the CDMO sector achieved revenue of 4.08 billion yuan, an increase of 19.4% over the previous year. Despite significant declines in industry investment and financing and large fluctuations in the macro environment, it maintained steady growth, which was in line with the company's previous expectations. The API sector achieved annual revenue of 1.26 billion yuan, a year-on-year decrease of 23%. Among them, anti-infective drugs changed significantly, and revenue fell 44% year on year, mainly affected by increased competition in the industry. Central nervous system drugs and hypoglycemic drugs decreased by 17% and 19%, respectively. Mainly due to factors such as market restructuring, non-steroidal anti-inflammatory drugs still achieved a 6% year-on-year increase.
Adhere to customer development strategies and steady growth of the CDMO project pipeline
The company adheres to the strategy of “deepening” big customers and “expanding” emerging customers. While further deepening cooperation with major customers, the company also actively strengthens BD and expands emerging customers. Currently, the company has formed deep cooperation with well-known international pharmaceutical companies such as Novartis, Roche, Shoteng, Gilead, and Daiichi Sankyo. Business orders have grown rapidly, and customers in Japan and South Korea have expanded significantly in 2023. The company is also actively expanding cooperation opportunities with domestic pharmaceutical companies such as Betta Pharmaceuticals, Hutchison Huangpu, Alice, Haihe Biotech, Luye Pharmaceuticals, and Hualing Pharmaceuticals to expand its customer pool in China.
Based on the company's BD layout and business expansion over the years, the company's CDMO project pipeline has grown steadily, forming a sustainable funnel-shaped project structure.
By the end of '23, the company had undertaken 32 commercialization projects, 74 phase III clinical projects, and 902 phase I/II clinical projects, covering anti-tumor, anti-heart failure, antiviral, central nervous system and cardiovascular treatment fields. At the same time, with the completion of Ruihua Zhongshan's delivery in 23, the company's formulation side formed an integrated service system for R&D, production and registration. Over 23 years, it provided services for more than 70 formulation projects for more than 40 customers, and introduced more than 20 new customers.
Actively lay out emerging fields, and production capacity construction is progressing steadily
The company has built a technology platform for peptide drugs, conjugated drugs and small nucleic acid, and the core team has more than 15 years of R&D and management experience. The peptide platform has independently developed unnatural amino acid synthesis technology, developed non-classic solid phase carrier products, and has undertaken and delivered a number of customized peptide and new peptide drug IND commissioned research and development services to help customers report multiple projects at home and abroad; the conjugate drug technology platform has established rich libraries and toxin banks, and the OEB5GMP production line has also begun to be put into use, and the company has begun to undertake the development and production of highly active conjugated drugs from customers. The small nucleic acid platform consists of teams from China and the US, and has the ability to undertake small nucleic acid customization, pharmaceutical research, and toxicological batch production.
By the end of 23, the Ruibo Taizhou (Phase I) production workshop and supporting facilities had completed the main construction and entered the equipment installation stage. Some production lines are expected to be put into use in 24Q2, and the API spray drying production workshop has already been put into use; the Ruibo Suzhou pilot plant has begun to be put into use one after another, and Ruibo America has carried out the second phase of the pilot plant installation design work, which will further enhance Ruibo America's CMC project acceptance capacity.
24-year outlook: The API sector is recovering steadily, and new business segments are gradually unleashing potential. The API sector has entered the “inventory removal” stage in the industry. At the same time, in the face of competition from Indian companies, revenue was under phased pressure in 23 years, and it is expected that it will gradually recover in '24. The company's CDMO production capacity has progressed steadily. Workshops such as Zhejiang Ruibo and Suzhou Ruibo have been put into use for 23 years. The number of customers/projects has been growing steadily, and the business share has gradually increased. It is expected that it will continue to grow steadily for 24 years. The peptide sector in the emerging business sector has completed several IND projects. The Suzhou Ruibo peptide pilot plant has been put into use, and subsequent production capacity is still being laid out. The initial construction of the ADC and small nucleic acid platform was completed, and the project acceptance capacity was further enhanced; Ruihua Zhongshan completed delivery and began undertaking projects, including the original formulation and the late progress of Kangchuanji Generic Pharmaceuticals CRO, and the gradual expansion of the new business segment is expected to become a new driving force for the company's future growth.
Financial analysis: The cost rate increased during the period, and the continuous improvement in profitability was due to the company's continuous implementation of excellent operation, continuous optimization of a matrix management system guided by project operation, rapid improvement in project delivery efficiency, and continuous improvement in the company's cost ratio. In 2023, the company's sales expense ratio, management expense ratio, R&D expense ratio, and financial expense ratio were 1.48%, 8.07%, 5.99%, and -1.37%, respectively. The year-on-year changes were +0.42pp, +0.19pp, 0.71pp, and +0.21pp. The cost ratio rebounded during the period, which is expected to be related to the company's Q4 revenue slowdown but no significant reduction in period expenses. The company's share of CDMO increased further in '23, and its profitability continued to increase. The company's gross margin reached 37.7% and net profit margin reached 18.7%, all of which are new highs in the past 5 years.
Investment advice:
As a leading CDMO company, the company adheres to the strategy of “deepening” big customers and “expanding” emerging customers to achieve a sharp rise in the quantity and quality of CDMO pipelines. At the same time, we will continue to increase R&D and production capacity through the “build-in+outreach” approach to promote the high-quality and rapid development of the CDMO sector. We are optimistic that the company will continue to develop in the CDMO field in the future. We expect the company's revenue to be 6.38 billion yuan, 7.61 billion yuan, and 8.73 billion yuan respectively in 2024 to 2026, up 15.6%, 19.2%, and 14.8%. Net profit to mother will be 1.26 billion yuan, 1.50 billion yuan, and 1.72 billion yuan respectively, up 21.7%, 19.0%, and 15.0% year on year, corresponding PE is 12 times, 10 times, and 9 times, respectively, maintaining a “buy” rating.
Risk warning: Major customer dependency risk: the company is highly dependent on the demand of a single customer, and falling customer demand or product sales falling short of expectations may pose a risk to the company; orders falling short of expectations: the company's services are mainly innovative pharmaceutical raw materials and intermediates in the sales stage of patented drugs. After the launch of innovative drugs, sales volume falls short of expectations due to various factors such as market promotion, doctors' and patients' medication habits, or the need to face generic drug competition when the patent expires, may affect the company's future orders; Market competition intensifies risk: The domestic CDMO industry is developing rapidly and the market size is expanding rapidly. The company may face the risk of increased market competition; the risk of policy changes: Domestic drug administration supervision policies have changed greatly. In recent years, the implementation of the marketing licensor system (MAH), generic drug consistency evaluation, volume procurement, and review and approval related to original auxiliary packages and pharmaceutical preparations has caused profound changes in API production. The company needs to adjust its development strategy according to the policy in due course, and there is a risk that the company will have an impact on business operations due to inability to quickly adapt to policy changes; Risk of exchange rate fluctuations: The company's overseas business accounts for a relatively high share, and the US dollar and euro are the main settlement currencies.