The company announced 2023 results: In 2023, operating income was $259.9 million (+3.8%), gross margin was 30.2% (-5.4pp), net profit was $10.7 million (-58.7%), and adjusted net profit was $24.0 million (-33.7%).
reviews
Revenue in the North American market in 2023 was basically the same as in 2022, and the laboratory business maintained a steady growth trend. In 2023, North American business revenue was $199.1 million (+1.4%), accounting for 76.6%, of which laboratory testing revenue was $96 million (+13%), drug discovery revenue was $22 million (-33%), drug development revenue was $78 million (+5%), and pharmaceutical product development revenue was $3 million (-40%).
Revenue in China has maintained steady growth. In 2023, business revenue in China was 60.8 million US dollars (+12.6%), accounting for 23.4%. Of this, laboratory testing revenue was $28 million (+27%), drug discovery revenue was $11 million (-15%), drug development revenue was $18 million (+50%), and pharmaceutical product development revenue was $4 million (-33%).
The company has restructured its CRO business structure, divided into four major business units: drug discovery, drug development, pharmaceutical product development, and laboratory testing, and established two new core business divisions, “Global Drug Discovery and Development Service” and “Global Laboratory Services”. Through business restructuring, optimized management and process integration, the company promotes collaborative operation between North America and China, maintains the same quality standards, shares cutting-edge technology, project experience, quality systems and customer resources, enhances market competitiveness, and consolidates the market position of its integrated drug discovery and development platform.
In 2023, the company expanded its global facilities platform, and personnel increased slightly. In the future, it will continue to invest in endogenous growth, strategic mergers and acquisitions, and talent team building.
The company drives business expansion through technology. In North America, the company acquired Nuro-Technics in Toronto, Canada; integrated the business of Biotranex Laboratories, LLC and provided transporter research to enhance DMPK service capabilities; rapidly developed the pathology service team led by Dr. Stewart Jacobson; and strengthened the safety assessment operation facility in Chicago to enhance the two future services of ophthalmic toxicology and DART. In China, the DMPK business has made progress in using human hepatocytes and high-throughput PAMPA screening to study BSEP and compound permeability; a new clinical sample production facility in Suzhou has enhanced clinical sample production capacity and helped achieve seamless drug research, development, and clinical trial supply, thereby speeding up the launch of drug clinical trials.
valuations
Affected by the decline in global biomedical investment and financing growth, we adjusted the company's 2024-2026 revenue to US$3.00, 3.60, and 422 million, respectively, with year-on-year growth rates of 15%, 20%, and 17% (originally estimated 24-25 revenue of 4.12 and 538 million US dollars); adjusted net profit for 2024-2026 was US$0.34, 0.43, and US$52 million (originally estimated net profit of 24-25 net profit was 0.59 million US dollars and 80 million US dollars). The year-on-year growth rates were 40%, 28%, and 20%, respectively. We gave 2024 a PE multiplier of 15 times (the previous valuation multiplier was 20 times that year; we lowered the PE ratio in view of comparable company valuations), and the corresponding target price was HK$1.89 per share (original target price of HK$3.40, a decrease of 44%), maintaining the “superior to the market” rating.
risks
Industry competition heightens risks, global biomedical investment and financing risks falling, profit margins falling due to capacity expansion, and risk of business collaboration between China and the US falling short of expectations.