The 1Q24 net loss was in line with expectations. The company maintains its 2024 revenue guidance. We maintain a “hold” rating and target price of HK$33. In the absence of clear guidance on the prospects for products to go overseas, we believe that the current stock price is within a reasonable valuation range.
The net loss for 1Q24 was in line with expectations: 1Q24 achieved revenue of RMB 330 million (+96.41% YoY, +6.6% QoQ), slightly lower than our expectations; net loss of $349 million (+7.8% YoY, -27.4% QoQ), in line with our expectations, mainly due to gross margin being slightly better than our expectations, operating expenses (sales expenses, R&D expenses, administrative expenses) falling short of our expectations and other non-operating income falling short of our expectations. The gross margin reached 77.5%, a slight decrease of 0.5 percentage points from 4Q23. The net operating cash flow outflow was $430 million, which was basically in line with our expectations.
Maintain the guideline of 50% year-on-year revenue growth in 2024: According to our recent communication with the company, the company maintains the 2024 guidance given by the annual report, that is, overall revenue growth of 50% year over year, including revenue growth of both listed products (RC18 and RC48) of which RC18 is expected to grow slightly faster than RC48. Looking at sales for the first quarter, revenue slightly exceeded the company's original internal target, and management is confident that annual sales will achieve the revenue target of 1.6 billion yuan.
The fixed increase in A shares is still subject to regulatory approval, and there are no guidelines on the issuance period: According to the March 30 announcement, the company plans to increase A shares by 2.55 billion yuan, all of which will be used to support the research and development of innovative drugs. According to our recent communication with the company, the fixed increase plan is still being approved by the Securities Regulatory Commission and is expected to take half a year to 1 year for approval. After approval is completed, the company will decide whether to issue a fixed increase based on the stock price situation. It is expected that some bank loans will be replaced after the fixed increase in capital raising is completed. Currently, the company's 4 billion yuan bank credit line can support the company's operation for about 2 years (see our previous annual report performance report for details).
The main catalysts for 2024:1) RC18: potential overseas authorization, RA indication approved in China, MG indication declared in China, 2) RC48 (HER2 ADC): stage 2 1L MIBC (muscle-invasive bladder cancer) new adjuvant treatment (combined with PD-1) data and phase II 2L CC (cervical cancer) data are all expected to be read at the 2024 ASCO conference, 3) RC88 (MSLN ADC): stage 1b (ovarian cancer), CC (cervical cancer), NSQ-clnsC (non-squamous, non-small cells (Lung cancer) data is expected to be read out at the 2024 ASCO conference, and potential overseas authorization transactions.
Maintain the “hold” rating and target price of HK$33: Maintain the company's target price of HK$33 and the “hold” rating. Without clear guidelines for going overseas, we believe that the company's current stock price is within a reasonable valuation range. If RC18 or RC88 can go overseas during the year, the company's stock is expected to usher in a major upward opportunity.
Investment risks: Delayed or failed authorization to go overseas, cash flow consumption greater than expected, sales falling short of expectations, delays in R&D, or poor clinical trial data.