Incident: Kanglong Chemical released its 2024 quarterly report. In the first quarter of 2024, the company achieved revenue of 2,671 billion yuan (-1.95% YoY), net profit attributable to mother of 231 million yuan (YoY -33.80%), net profit excluding non-attributable net profit of 187 million yuan (YoY -46.01%), non-IFRS adjusted net profit of 339 million yuan (-22.7% YoY), and operating cash flow of 746 million yuan (+40.70% YoY).
Comment:
Business consolidation affected profit margin performance, and expense ratios increased slightly. In terms of profit margin, the company achieved a gross profit margin of 32.66% (-3.13pp), a net interest rate of 8.63% (year-on-year -4.15pp), a net interest rate of 7.01% (year-on-year -5.72pp), and a non-IFRS adjusted net interest rate of 12.69% (y-3.41pp). In order to increase the scale effect, the company integrated laboratory service businesses in Shanghai and Ningbo/Beijing, and closed the Shanghai laboratory, leading to a one-time loss, compounded by increased employee costs and reduced return on fair value of biological assets. Compared to a decline. In terms of cost ratio, the cost ratio during 2024Q1 was 22.88% (YoY +1.36pp), with sales/management/R&D/finance expenses ratios of 2.08% (YoY +0.03pp)/14.92% (YoY -0.29pp)/3.50% (YoY +0.68pp)/2.38% (YoY +0.93pp), respectively. The year-on-year increase in interest expenses led to a significant increase in financial expense ratios.
The industry environment was cold, putting pressure on performance, and multiple indicators sent signs of recovery. 2024Q1, the company achieved revenue of 1,605 billion yuan (-2.9% YoY), gross profit margin of 44.1% (YoY -0.3pp), and new orders increased 10% + year over year, which is expected to drive the business to recover quarterly; in CMC services, revenue of 582 million yuan (-2.7% YoY), gross profit ratio 27.9% (-5.0pp), new production capacity conversion in Shaoxing and higher employee costs in China and the UK caused gross margin to decline year by year, but new orders increased 40% + year on year; in clinical Research services achieved revenue of 392 million yuan (+4.6% YoY), with a gross profit margin of 9.3% (YoY -4.7pp). The company's overseas service development was good, driving steady revenue growth; macromolecule, cell and gene therapy achieved revenue of 0.9 billion yuan (-4.1% YoY), gross profit margin of -38.6% (YoY -26.9pp), testing service revenue declined, and gene therapy CDMO revenue continued to grow, waiting for the industry to pick up.
The number of customers continued to grow, and new orders increased 20% + year over year, supporting long-term stable development. In 2023, the company added more than 800 new customers and more than 2,800 active customers. Overseas business revenue increased by 27.5%, European customers accelerated growth at a rate of 24.4%, and revenue contributions to overseas markets continued to grow at a high rate. 2024Q1, with the support of the company's high-quality technology and service capabilities, the growth rate of new orders signed by the company increased 20% year-on-year.
Profit forecast: We expect the company's revenue for 2024-2026 to be 127.66/144.92/16.8879 billion yuan, up 10.6%/13.5%/16.5% year on year; net profit to mother will be 16.06/19.44/2,454 billion yuan respectively, up 0.3%/21.1%/26.2% year on year, corresponding to 2024-2026 PE 21/18/14 times, respectively.
Risk factors: Risks such as increased competition in the industry, declining demand for R&D investment and outsourcing, policy risks, and new business development falling short of expectations.