Revenue remained flat throughout the year, and the profit side was under pressure in the short term. Revenue for the full year of 2023 was 2,376 billion yuan (+4.78%), net profit of 397 million yuan (-63.04%), and net profit after deducting non-return to mother of 338 million yuan (-66.89%). The decline in profit was mainly due to the decline in the company's gross margin compounded by changes in the fair value of biological assets due to increased competition in the industry. Among them, revenue for the fourth quarter was 789 million yuan (-20.39%), net profit for the single quarter was 69 million yuan (-84.31%), and net profit from non-return to mother for the single quarter was 0.26 million yuan (-93.60%).

By region: The internationalization strategy has paid off, and the share of overseas revenue continues to increase. In 2023, the company's overseas revenue was 579 million yuan, up 51.17% year on year, and its share of total revenue rose to 24.35% (+7.46pp) from 16.89% in 2022. As the internationalization strategy continues to advance, the company is expected to further increase overseas market revenue and increase overseas market share.

The company continues to promote an integrated layout and enhance core business capabilities. The company uses its non-clinical industry position advantages and project resource advantages to expand and strengthen the upstream and downstream segments of the business chain. 1) Non-clinical business: In 2023, the company's non-clinical business revenue was 2.309 billion yuan, up 4.31% year on year; 2) Clinical business: In 2023, the company's clinical business revenue was 63 million yuan, up 27.95% year on year, and successfully passed CNAS 17025 supervision and review and multiple verifications; 3) Experimental model research: The company has created a variety of gene-edited mouse models and cell models, which have now been rolled out to the market to serve non-clinical research in enterprises and universities.

The number of projects in the segment continues to grow, and the market share remains dominant. Based on the number of projects accepted by CDE, the company accounts for 52% of the cell therapy (excluding stem cells) market, 53% for gene therapy, 42% for monoclonal antibodies, 36% for stem cells, 33% for dual antibodies, and 27% for ADC.

There are plenty of orders in hand, and the expansion of production capacity and personnel guarantees order execution. By the end of 2023, the company had orders of about 3.3 billion yuan. The company rationally plans production capacity and personnel investment to guarantee order execution. 1) Production capacity: Suzhou Zhaoyan Phase II's 20,000 square meter facility construction has been capped and will be gradually put into use in 2024. At the same time, Suzhou has begun construction of 22,000 square meters of supporting facilities and is expected to be completed in 2024; the construction of the Guangzhou Zhaoyan Security Assessment Base is progressing in an orderly manner; the Zhaoyan Yichuang non-GLP laboratory has been put into use; 2) Personnel: By the end of 2023, the company had a professional service team of more than 2,510 people.

Risk warning: Risk of declining industry sentiment; risk of changes in fair value of biological assets; increased risk of market competition.

Investment advice: Market segments maintain their advantages, show results in internationalization and integrated layout, and maintain “buying”. The company's revenue for the full year of 2023 was basically the same. Considering the intensification of market competition and geopolitical risks, the 2024/2025 profit forecast was lowered and the 2026 profit forecast was added. The net profit for 2024-2026 is expected to be 4.04/5.46/ 604 million yuan (originally 2024/2025 702/806 million yuan), a year-on-year growth rate of 1.82%/34.96%/10.65%. The current stock price corresponds to PE = 35.2/26.1/23.6x. As the company's internationalization and integrated layout continue to mature, it is expected to maintain steady growth in the future.