Incident: The company released its performance report for the first quarter of 2024. In the first quarter of 2024, the company achieved operating income of 356 million yuan, an increase of 71.02% year on year; net profit to mother was 66.33 million yuan, up 215.65% year on year; and realized deduction of non-net profit of 65.4 million yuan, an increase of 179.69% year on year.
The performance was higher than the median forecast, and the advantages in the peptide field continued to be realized, and it is expected to continue to maintain a high growth trend. 2024Q1 achieved operating income of 356 million yuan (+71.02%); net profit of 66.33 million yuan (+215.65%); deducted non-net profit of 65.4 million yuan (+179.69%). Net profit and deductions to mother were both higher than the median forecast, and continued to perform strongly. We expect that it is mainly due to: ① some major commercial varieties of peptides in the self-selected product business have ushered in a harvest period, showing a continuous trend of release; ② demand in the global peptide industry chain continues to rise, and some of the company's peptide APIs have been verified and released at high speed; ③ the high incidence of influenza in spring and strong demand for the company's oseltamivir series products; ④ the company's small-molecule CDMO technology has significant advantages, and customized services are gradually recovering. In terms of profitability, 2024Q1 has an overall gross profit margin of 67.26% (+11.33pp) and a net profit margin of 18.15% (+9.07pp). Sales expenses of 11.49 million yuan (-37.07%), expense ratio 3.23% (-5.54pp). Management expenses 70.57 million yuan (+59.03%), cost ratio 19.83% (-1.50pp). Financial expenses 3.25 million yuan (-20.22%), cost ratio 0.91% (-1.05pp), R&D expenses 66.25 million yuan (+230.56%), cost ratio 18.62% (+8.99pp).
Self-selected products, mainly peptides and specialty APIs, continue to grow rapidly, and small-molecule CDMOs are gradually recovering. 1) Independent products: Continued progress in the research pipeline, and approval of new products is expected to bring new momentum for growth. In 2023, the sector's revenue was approximately $629 million (+145.48%). The company announced that it has successfully signed strategic cooperation agreements for major domestic GLP-1 APIs CDMO, European simeglutide injections, and oral simeglutide APIs, etc., and the rapid growth trend is expected to continue in the medium to long term. Furthermore, in October and December 2023, the company received the FDA's First Approval Letter for Liraglutide and Smeglutide APIs, respectively. The third-generation peptide production workshop at the 106 workshop was successfully put into operation. It is expected to reach tonnage production capacity. The Lianyungang production base plans to build a new peptide production workshop, which is expected to reach several tons of peptide production capacity. We expect that as new production capacity continues to rise, the company's independent product business is expected to continue to maintain a high growth trend. 2) C (D) MO:
Large orders have been signed, and it is expected that they will gradually resume in 2024. With the advantages of two major technology platforms, the company has established long-term cooperative relationships with well-known pharmaceutical companies such as Gilead, Inset, Shoteng, and Mirati. In May 2023, the company signed a 7-year supply contract for cGMP pharmaceutical advanced intermediates with a cumulative contract amount of about US$102 million with large European pharmaceutical customers, consolidating and gradually regaining certainty.
Profit forecast and valuation: Considering the strong demand for the company's independent selection of products, we expect the company's revenue in 2024-2026 to be 1,417 billion yuan, 2,803 million yuan, and 2,861 billion yuan respectively, with growth rates of 37.10%, 41.35%, and 42.85% respectively. However, considering the company's high amortization of expenses such as convertible bonds and equity incentives in 2024, the cost ratio is expected to gradually rise. We expect net profit to the mother in 2024-2026 will be 221 million yuan, 312 million yuan, and 451 million yuan respectively. 35.49%, 41.26%, 44.55% The company has a rich pipeline of independently selected products, and the C (D) MO technology platform has significant advantages. In the future, it is expected to bring long-term growth and maintain a “buy” rating through its own product +C (D) MO two-wheel drive.
Risk warning events: Public data used in research reports may be at risk of information delays or untimely updates; risk of production capacity growth falling short of expectations; risk of loss of core technical personnel; risk of falling gross margin; risk of rising raw material supply and prices; risk of environmental protection and production safety; risk of exchange rate fluctuations.