Matters:
The company achieved revenue of 1,400 million yuan (-37.76%) in 24Q1, achieved net profit of 282 million yuan (-55.27%), and net profit of 254 million yuan (-58.88%) after deducting net income to mother. Basically in line with expectations.
Ping An's point of view:
Q1 Regular business grew steadily
The overall revenue of $1.4 billion in 24Q1 is +15.21% after excluding the impact of the large order base. It is within the annual revenue guidance range (15% - 25%), and as project settlement increases in the next few quarters, it is estimated that there is room for further improvement in the overall growth rate. The company's overall gross profit margin is 43.52% (YoY -4.88pct, QoQ+5.49pct), which can generally be viewed as a more conventional gross margin level in the post-big order era. 24Q1's sales, management, and R&D expenses rates were 3.19%, 12.33%, and 12.10%, respectively. Due to factors such as large order base and centralized settlement costs at the end of the year, these cost rates were not comparable or month-on-month. Judging from the absolute amount of expenses, the company's cost control achieved good results. The company's overall net interest rate is 20%, and exchange rate fluctuations and interest income play a positive role. After subsequent orders gradually pick up, the company's net interest rate will return to an ideal state as capacity utilization increases.
The gross margin of the small molecule business has returned to normal. The small molecule business revenue of the emerging business is 1,223 billion yuan, which is at the core of the company's profit level due to domestic competition. After excluding large orders, the gross margin is 47.34%. With excellent production control, the gross margin is maintained at a high level; revenue from emerging businesses is 176 million yuan (-29.30%), and the gross margin ratio is 17.30%. In an environment where domestic pharmaceutical investment and financing are cold, revenue growth and low gross margin are expected to continue for some time.
The company recently added a lot of large-scale peptide production capacity, and the solid phase synthesis production capacity has reached 10,250L. With the implementation of peptide production capacity, the company was able to attract large-scale peptide orders at home and abroad. When these facilities achieve high utilization rates, large-scale peptide orders will significantly increase the gross profit margin of emerging business segments.
Maintain a “Highly Recommended” rating. Maintain the profit forecast of 2024-2026 net profit to mother of 12.55, 16.72, and 2,140 billion yuan. In 2024, the company's apparent performance in Q1-Q3 is expected to be poor due to the high base of large orders last year. The decline in performance due to such incidental factors does not affect the company's own texture and profitability. Excluding large order volumes, the company is expected to achieve steady growth. From a valuation perspective, the one-time income from large orders is not reflected in the market value, and it is expected that the industry and companies will complete adjustments in 2025 and return to relatively rapid growth. They are highly cost-effective in terms of valuation, and maintain a “highly recommended” rating.
Risk warning: 1) Global pharmaceutical innovation investment and outsourcing ratio falls short of expectations; 2) Drug development failure will cause CDMO to lose corresponding orders; drug marketing and sales fall short of expectations, and CDMO orders cannot be released smoothly; 3) Companies may lose orders or even customers due to production accidents, warning letters from regulators, or other situations that cannot meet customer needs; 4) Exchange rate fluctuations may cause exchange gains and losses.