Multiple factors put pressure on the profit side. In 2023, the number of customers served continued to increase. The company achieved revenue of 1,725 billion yuan, an increase of 8.18% over the previous year; realized net profit of 197 million yuan, a year-on-year decrease of 37.19%; and net profit after deducting non-return to mother was 176 million yuan, a year-on-year decrease of 33.81%. With 2024Q1, the company achieved revenue of 377 million yuan, down 1.56% year on year; net profit due to mother was 49.49 million yuan, down 14.32% year on year; net profit after deducting non-return to mother was 41.43 million yuan, down 0.60% year on year. Profits are under pressure in the short term due to various factors such as depreciation of new production capacity (current depreciation amount of 109 million yuan, up 34.06% year on year), increase in labor costs (increase of 81 million yuan year on year), and interest expenses on convertible bonds (increase of 15.9584 million yuan year over year). In 2023, the number of active customers of the company reached 744, an increase of 8.77% over the previous year; the number of customers with large orders over 5 million was 75, an increase of 25% over the previous year. Considering the pressure on downstream demand in the industry and the strong pressure on the company's cost side, we lowered our 2024-2025 profit forecast and added the 2026 profit forecast. The net profit for 2024-2026 is expected to be 233/26/303 million yuan (originally estimated at 377/457 million yuan), EPS is 1.17/1.30/1.52 yuan, and the PE corresponding to the current stock price is 27.2/24.4/20.9 times. In view of the continuous increase in the company's active customers, we maintain a “buy” rating.

Guided by market demand, design a series of molecular blocks required for drug development in a series of new chemical entities. Product and service revenue for the pharmaceutical research stage in 2023 was 345 million yuan, an increase of 12.13% over the previous year. The company focuses on the R&D and innovation of molecular blocks. It has designed more than 200,000 molecular blocks and stocks more than 60,000 types. In 2023, the company designed more than 15,000 new molecular blocks, covering popular targets such as PI3K and GLP-1; at the same time, the company designed a series of molecular blocks required for drug development in new chemical entities, covering various technical fields such as TPD, ADC, peptide drugs, oligonucleotides, etc., and completed the synthesis of more than 6,000 new molecular blocks.

The CDMO pipeline continues to expand, production capacity construction progresses steadily, and continues to empower global customers to generate 1,380 billion yuan in product and service revenue in the drug development and commercialization stage in 2023, an increase of 7.24% over the previous year.

The company's project pipeline continues to expand. There are 2,200 pre-clinical to clinical phase II projects, and 62 clinical phase III to commercialization projects. The company continues to strengthen the global layout of CMC's integrated services. In 2023, American Pharmaceutical Stone officially opened its process R&D center in West Chester. The production capacity of the new Huishi 501 and 502 workshops has climbed to a stable stage. Single batch production costs have been reduced by 3.66%, and large-scale production efficiency has been further improved.

Risk warning: risk of fluctuating orders from major customers, risk of loss of customers, production capacity falling short of expectations, etc.