1Q24's endogenous conventional revenue continued the steady growth trend, maintaining the “buy” rating company 1Q24 to achieve revenue/net profit of 1,40/280 million yuan (yoy -37.8%/-55.3%). If the impact of large orders is excluded, 1Q24 revenue yoy +15.2%, and the company's endogenous regular business revenue maintained steady growth. We maintain our profit forecast and expect EPS of $3.52/4.46/5.60 for 24-26. The company is a leader in the CDMO industry, with excellent technology and high visibility of on-hand orders. A/H shares were given 24-year 31/23x PE (A/H shares had a 24-year wind average of 21/21x), corresponding target price of 109.12 yuan/87.47 HKD (previous value: 116.16 yuan/80.00 HKD; the target price reduction for A shares mainly takes into account the average PE correction of comparable companies), maintaining a “buy” rating.
The level of gross margin increased month-on-month
The company's gross margin for 1Q24 was 43.5% (yoy-4.9pct). We estimate that the gross margin level of large orders delivered by 1Q23 is high and the revenue contribution is relatively large, but it has increased month-on-month (qoq+5.5pct). 1Q24 sales/management/ R&D expense ratio 3.2%/12.3%/12.1% (yoy+1.7/+5.0/+4.9pct). The dilution effect on the company's various cost rates was significantly weakened, mainly due to the reduction in the company's revenue contribution from large orders.
Small molecule CDMO: Regular core business revenue continues to grow rapidly
The company's small-molecule CDMO business had revenue of 1.22 billion yuan in 1Q24. After excluding large orders, revenue yoy was +26.6%. Regular core business revenue continued to grow rapidly. The company's 1Q24 confirmed revenue for 30 small molecule commercialization projects and confirmed revenue for 148 small molecule clinical stage projects (including 41 clinical phase III projects), and the company's ability to accept orders is stable. Considering the company's excellent technical strength and high customer recognition, we are optimistic that the company's regular core business revenue will continue to grow steadily for 24 years.
Emerging services: short-term external shocks do not change long-term positive trends
The company's Emerging Services 1Q24 has a total revenue of 180 million yuan (yoy -29.3%), mainly due to the phased decline in domestic investment and financing activities, but all businesses have highlights: 1) Biomacromolecule CDMO: 71 projects in progress by the end of 23, the company expects the share of conjugated drug orders to continue to increase; 2) Synthetic biotechnology: it has completed multiple enzyme evolution orders in 23 years and has received follow-up orders; 3) Chemical macromolecules: the company continues to strengthen production capacity and is expected to synthesize 6M24 solid phase by 6M24 Total Production capacity will reach 14,250L; 5) Continuous reaction technology output: revenue of over 100 million yuan was confirmed in the first year of commercialization in 23 years; 6) Clinical research services: 347 new projects were introduced in 23 years, and the business in fields such as CGT and rare diseases maintained a strong momentum. We are optimistic that the overall development of emerging services will continue to improve over the past 24 years.
Risk warning: downstream product sales fall short of expectations, policy implementation falls short of expectations, risk of exchange rate fluctuations.