Matters:
The company released its 2024 quarterly report. Q1 achieved revenue of 1,660 million yuan (-8.00%), realized net profit of 235 million yuan (-58.65%), and net profit after deduction of 303 million yuan (-20.50%).
Ping An's point of view:
The Q1 regular business remained flat, and the decline in gross margin was limited
The company achieved revenue of 1,660 billion yuan (-8.00%) in 24Q1. It is estimated that after excluding service fees and handling fees related to the COVID-19 vaccine in the same period last year, revenue was basically the same as the same period last year. Considering (1) some 22Q4 orders accumulated to 23Q1 due to the pandemic, which had a high base for the same period last year; (2) weak demand for 23H2 innovation reduced the number of newly opened clinical projects in 24Q1, we believe that the company's 24Q1 performance is in line with expectations, and the annual performance is expected to show a high trend of low and back, and improvements will be achieved quarter by quarter.
Q1's overall gross profit margin of 37.83% (YoY -1.82%) remained relatively stable compared to new orders in early '23. This is consistent with the findings of our recent industry research. Asset-light clinical CRO can more effectively reduce costs and hedge against price pressure by improving efficiency and optimizing the structure during the cold winter of the industry. Moreover, the company has been actively developing overseas business in recent years, and orders such as overseas digital systems have not experienced price competition for some time in the past.
The implementation of innovation support policies is expected to boost domestic demand
Recently, Beijing, Guangzhou and other places have successively introduced innovative drug support policies. Local governments and corresponding departments have encouraged innovative drugs from various angles, such as exploration, research and development, reporting, use, and payment, and the degree of completion of the policy is high. The promotion and implementation of the policy is expected to stimulate the innovative drug industry and investment and financing market, ultimately achieve the overall recovery of the industry, and revive pharmaceutical companies' desire for innovation and demand for high-quality CRO services.
Maintain the “Recommended” rating: Maintain the forecast of 2024-2026 net profit of 22.71, 27.96, and 3.05 billion yuan, and maintain the “Recommended” rating.
Risk warning: 1) There is volatility and uncertainty in new drug development, which may cause the company's performance to fluctuate; 2) If the quality of service provided by the company does not meet the requirements, it may lead to rework, lost orders, etc.; 3) The company expands its business globally through mergers and acquisitions, etc., and if integration is not smooth, it may have a negative impact on the company's long-term development.