Introduction to this report:

The company released its 2024 quarterly report. Performance was slightly lower than expected. Performance declined due to base effect and weakening order demand. The 24-year results are expected to pick up quarterly as demand improves.

Key points of investment:

Maintain an “Overweight” rating. The company released its 2024 quarterly report, and the results were slightly below expectations. Maintain the 24-26 EPS of 2.58/2.99/3.39 yuan. Refer to the industry average. Considering that the company has a certain premium as the CRO leader, the 2024 PE 26X will be given, the target price will be maintained at 67.08 yuan, and the “increase” rating will be maintained.

Revenue declined slightly, benefiting from policy optimization and support, which is expected to pick up in the future. 24Q1 achieved revenue of 1,660 billion yuan (-8.0%). The slight decline is expected mainly due to: ① 23Q1 still has a high base due to the release of some COVID-related project revenue and backlog demand after deregulation; ② 23H2 is affected by the tightening of industry policies, and order demand has decreased, leading to a decrease in 24Q1 revenue recognition. In the past 24 years, policies in the innovative drug industry have continued to warm up: ① “Innovative drugs” entered the government work report for the first time; ② Beijing, Guangzhou, Zhuhai and other places have issued documents supporting innovative drugs, etc. It is expected that future orders will gradually resume as market demand for innovative drugs etc. rises in the context of policy support, and performance is expected to pick up quarter by quarter.

After deducting non-net profit, there was a year-on-year decline due to factors such as the high base effect. Net profit for 24Q1 was 235 million yuan (-58.7%), after deducting non-net profit of 303 million yuan (-20.5%). The difference was mainly non-recurring profit and loss of 67.98 million yuan (mainly affecting minority shareholders' equity of 81.67 million). The deduction of non-net profit can also show the company's actual operating conditions. The projected year-on-year decline in deductions is mainly due to: ① the high base figure for the same period in 23Q1; ② gross margin of -1.82 pct year over year. It is expected that the gross margin for laboratory services may have declined slightly. There was no marginal improvement in deductions, +8.7% month-on-month, which is expected mainly due to an improvement in the general environment in the hospital. The cost rate for the period was 16.0% (+1.3 pct). Excluding the financial expense ratio of +1.8 pct year on year, it is expected that there will be some room for decline in the future. As subsequent cost reduction and efficiency increases, overall profitability is expected to be optimized.

Catalysts: Gradual increase in market demand, continuous promotion of domestic clinical trials, continuous expansion of overseas business Risk warning: clinical project progress falls short of expectations, risk of overseas policy risk, risk of investment return fluctuations