Matters:

(1) The company released its 2023 annual report, achieving full-year revenue of 1,725 billion yuan (+8.18%), net profit to mother of 197 million yuan (-37.19%), and net profit of 176 million yuan (-33.81%) after deducting net income to mother. Basically in line with expectations. Dividend plan: 3.1 yuan (tax included) for every 10 shares.

(2) The company released its 2024 quarterly report. Q1 achieved revenue of 377 million yuan (-1.56%), net profit to mother of 49 million yuan (-14.32%), and net profit of 41 million yuan (-0.60%) after deducting non-return to mother.

Ping An's point of view:

The industry is facing shrinking demand, process optimization+business adjustment to mitigate negative factors. Demand for related industries contracted due to the cooling of domestic and foreign pharmaceutical innovation industries. Increased competition also led to widespread price cuts and customer acquisition in all links of the industrial chain in 2023. Yakshi's growth rate and profitability were also impacted in the general environment. The annual research phase achieved revenue of 345 million yuan (+12.13%), corresponding gross margin of 70.44% (-0.98pct), and products and services achieved revenue of 1,380 million yuan (+7.24%) during the development and commercialization phase, and a corresponding gross margin of 35.53% (-3.73 pct). The profit side declined due to factors such as increased depreciation and interest on convertible bonds. The company mitigated the adverse factors of the overall environment through a number of countermeasures: (1) process optimization helped the company's business (especially the back-end business) to achieve a more efficient and lower cost operating level. The overall gross margin level has basically stabilized after falling in 2023, and the decline in gross margin was better than the price competition performance in the industry; (2) the company sorted out and adjusted the business sector, and part of the original internal drug development team was adjusted to the chemical CRO service business. It is expected that the new business will soon achieve a break-even balance.

Continue to develop business, and keep increasing the number of customers and projects

In recent years, the company has continued to strengthen its customer acquisition capabilities, and has achieved certain results. In 2023, the company had 744 active customers (+8.77%), and 75 customers with orders over 5 million (+25%). Corresponsively, the number of the company's project funnel has also increased. Among them, the number of early projects reached 2,200+ (1,75+ last year), and 62 phase 3 clinical and commercial projects (60 last year).

24Q1 remains steady, and growth is expected to return throughout the year

The company's 24Q1 front-end and back-end business remained stable. Among them, the pharmaceutical research business achieved revenue of 85 million yuan (+5.45%), the drug development and commercialization business achieved revenue of 292 million yuan (-3.45%), and the overall gross margin was 42.69% (-2.54 pct). Looking ahead to the whole year, the company will be less affected by delays in orders for a single anti-tumor commercialization project. The overall utilization rate of laboratories and workshops is stabilizing and is expected to achieve marginal improvement, and it is expected to return to a growth trajectory.

Maintain a “Recommended” rating. According to the progress of improvements in domestic and foreign pharmaceutical investment and financing conditions, the 2024-2025 profit forecast was adjusted and the 2026 forecast was added to net profit of 2.35, 3.02, and 393 million yuan (the original forecast for 2024-2025 was 2.56 million yuan and 377 million yuan). The company has established a relatively mature front-end and back-end business system. It is expected that with the gradual improvement of the pharmaceutical investment and financing environment, the company's performance can be repaired relatively quickly and maintain a “recommended” rating.

Risk warning: 1) The company's business predictability is relatively weak. If the actual business pace differs greatly from the company's forecast, production capacity may not match demand; 2) if the results of business expansion fall short of expectations, it may affect the company's development; 3) if customers do not renew products due to price factors, etc., it may affect the company's performance; 4) if management's management philosophy and methods cannot be changed in time according to the company's development stage, it may affect the company's development.