Under the high base for the same period in 2023, the company achieved both revenue and profit growth in the first quarter of 2024. In the first quarter of 2024, the company achieved revenue of 3.198 billion yuan (+3.6%), net profit attributable to mother of 244 million yuan (+1.8%), net profit after deducting non-attributable net profit of 239 million yuan (+2.4%), and net cash flow from operating activities of 280 million yuan (+25.6%). Under the high base for the first quarter of 2023, the company achieved positive year-on-year growth in revenue and profit for the first quarter of 2024.

APIs and intermediates sector: Revenue increased year-on-year, and gross margin declined. The APIs and intermediates sector achieved revenue of 2,356 billion yuan (+5.7%), gross profit of 392 million (-15.1%), and a gross profit margin of 16.62% in the first quarter of 2024. The year-on-year decline was mainly due to the increase in API volume and price after the release of the epidemic in the first quarter of 2023, which led to a large base.

CDMO sector: The project growth trend continues, and revenue declines under a high base. The CDMO sector achieved revenue of 501 million (-12.6%) in the first quarter of 2024, gross profit of 186 million yuan (-25.4%), and a gross profit margin of 37.1%, down 6.4 percentage points year on year and up 5.7 percentage points from month to month, mainly due to high gross profit (high base) of products sold after COVID-19 liberalization in the first quarter of 2023. Excluding COVID-19 products, sales revenue and gross profit of the CDMO business maintained steady growth in the first quarter of 2024. In the first quarter of '24, CDMO quoted 330 projects, an increase of 34% over the previous year. In the first quarter of '24, CDMO had 814 ongoing projects, up 41% year on year, including 302 commercialization projects (including 218 human drugs, 47 veterinary drugs, and 37 others), up 29% year on year; 512 R&D projects, up 63% year on year.

The number of projects has grown rapidly.

Formulation sector: R&D investment is increasing, and the pace of application and approval is expected to accelerate. The pharmaceutical sector achieved revenue of 342 million (+20.1%) in the first quarter of 2024, gross profit of 192 million yuan (+25.0%), and a gross profit margin of 56.1%, an increase of 2.5 percentage points over the previous year and an increase of 2.2 percentage points over the previous year. Currently, the company sets up more than 25 formulation R&D projects every year, and is in a stage of significant growth. At the same time, the company further expands the market by exploring potential varieties and developing multi-product strategies. As the pace of application and approval accelerates and market expansion increases, the formulation sector is expected to contribute new growth momentum to the company.

Risk warning: downturn in prosperity risk; geopolitical risk; safety and environmental risk; price risk.

Investment advice: Under a high base, both revenue and profit increased in the first quarter of 2024 to maintain “buying”.

The three major businesses are stable. With the improvement of the company's lean manufacturing capacity and process technology, the core competitiveness is expected to grow steadily, and the profit forecast is maintained. The company's net profit for 2024-2026 is expected to be 12.21/14.02/1,595 billion yuan, a year-on-year growth rate of 15.7%/14.9%/13.7%. The current stock price corresponds to PE = 13.3/11.6/10.2x.