Internal and external factors have affected the company's performance in the short term, but the amount of new orders has marginally improved the company's 1Q24 revenue/ adjusted non-IFRS net profit of 2,67/340 million yuan (yoy -2.0%/-22.7%), mainly due to the phased slowdown in investment and financing in the global healthcare industry combined with internal business integration and an increase in the number of employees. The company continues to strengthen its ability to accept orders. In 1Q24, the company signed a new order amount of more than 20%, and customer demand has shown a marginal recovery trend.
The company announced on the same day that it plans to repurchase the company's A shares with its own capital of 2-3 billion yuan to completely cancel, fully demonstrating the company's firm confidence in its long-term investment value. We maintain our profit forecast and expect the company's 24-26 EPS to be 0.96/1.15/1.37 yuan. The company is a CRO+CDMO platform enterprise with leading technical capabilities and a wide range of customers. It has given A/H shares 28/12x PE in 24 years (A/H shares have a consistent average expected average of 19/11x Wind in 24 years), corresponding to a target price of 26.75 yuan/12.39 HKD (previous value 26.75 yuan/12.41 HKD), maintaining a “buy” rating.
Actively strengthen R&D investment and further improve cash flow levels
The company's gross margin for 1Q24 was 32.7% (yoy-3.1 pct). We speculate that the main reason was the increase in the company's employees and that some of the new production capacity was put into operation one after another. The company's 1Q24 sales/management/R&D expense rates were 2.1%/14.9%/3.5% (yoy+0.03/-0.3/+0.7pct), respectively. The company continued to increase R&D investment to strengthen industry competitiveness. The company's net cash flow from 1Q24 operating activities was 750 million yuan (yoy +40.7%), and the cash flow level further improved.
Laboratory services: The 1Q24 business margins are improving. We are optimistic that the laboratory service business will maintain steady development throughout the year. 1Q24 achieved revenue of 16.1 billion yuan (yoy -2.9%). We estimate that the main reason is the phased slowdown in investment and financing in the global healthcare industry, but there has been an improvement over the month-on-month (1Q24 sector revenue qoq +0.9%, and the sector's new order amount is over 10%). The company continues to strengthen the production capacity of its core business, and it is expected that the Ningbo Third Park will gradually be put into use in 24 years. Considering the company's industry-leading laboratory service business capabilities and a solid foundation of customer cooperation, I am optimistic that the sector's revenue will continue to grow steadily in '24.
Other businesses: Maintaining the long-term upward trend
1) CMC: 1Q24 revenue of 580 million yuan (yoy -2.7%), mainly due to changes in the pace of project delivery, but the sector business has shown a positive trend (the amount of new orders signed in the 1Q24 sector exceeds 40% yoy); considering the gradual development of internal diversion effects in the CMC business, we are optimistic that it will achieve positive development throughout the year; 2) Clinical CRO: 1Q24 revenue of 340 million yuan (yoy +4.6%), considering that the sector's overseas business and domestic SMO business order quality will continue to improve, and we are optimistic that the sector's revenue will achieve a 24-year comparison Rapid growth; 3) Macromolecules and CGT: 1Q24 revenue was 90 million yuan (yoy -4.2%). The company continues to promote related production capacity construction and strengthen order acceptance capacity, and is optimistic that the sector will achieve positive development in '24.
Risk warning: the risk of policy progress falling short of expectations, risk of loss of scientific and technical talent, risk of exchange rate fluctuations.