Incident: The company released its 2023 annual report and 2024 quarterly report results announcements, including: 1) The company achieved operating income of 760 million yuan (YOY +29.65%) in 2023; realized net profit of 135 million yuan (YOY +86.06%); realized net profit of 114 million yuan (YOY +70.58%); 2) 2024Q1, the company achieved operating income of 185 million yuan (YOY +17.42%); achieved net profit of 0.23 million yuan (YOY -10.22%); Achieved net profit of 0.2 billion yuan (YOY +7.74%) after deduction, in line with market expectations.
The number of personnel continued to expand, and new orders were further increased. By the end of '23, the number of employees in the company had increased by 548 to 4,186 compared to the end of '22, an increase of 15% over the previous year, reflecting the good development trend of the company's business. In 2023, the amount of new non-tax contracts signed by the company was 1,292 billion yuan, an increase of 23.89% over the previous year; the stock amount of non-tax contracts was 1,881 billion yuan, an increase of 24.97% over the previous year. The expansion of personnel scale and the continuous increase in on-hand orders support the stable development of the company's subsequent business.
Innovative drug projects are diversified, and hospitals cover a wide range. By the end of '23, the company had implemented 1,832 projects, and had participated in more than 3,000 SMO projects. The company mainly undertakes innovative drug projects and has promoted the launch of 61 new oncology drugs. Currently, it is participating in 60 specialty projects including 60 ADC projects, 55 CAR-T projects, and 75 dual antibody projects. The company can now cover more than 1,300 clinical trial institutions, and the scope of services covers nearly 190 cities in China, strengthening the company's ability to participate in the execution of innovative drug SMO projects, and can respond quickly to and meet customer needs.
Gross margin was improved, and multiple factors affected net profit. The company's gross margin for the full year of '23 and 24Q1 was 30.4%/25.3% respectively, up 3.12 pp/0.75pp from the full year of '22 and 23Q1, respectively, reflecting the strengthening of the company's information management and improvement in operational efficiency. In 24Q1, the company's net profit declined year-on-year. The main reason was that government subsidies decreased compared to 23Q1, while the company's sales expenses ratio, management expense ratio, and R&D expenses ratio increased by 0.15pp/0.36pp/0.34pp to 1.13%/5.85%/4.70% year-on-year, respectively.
Profit forecasting, valuation and ratings: The company is a leading company on the SMO circuit, and gross margin and management expense ratios improved markedly after the disruptions of the pandemic subsided. Due to increased competition in the industry and weak demand for biomedical R&D, the company's net profit forecast for 24-25 was lowered to 162/193 million yuan (down 17.3%/21.5%, respectively), and the net profit forecast for 26 years was increased by 20.1%/19.3%/16.4% year-on-year, respectively. The current stock price corresponds to PE 17/14/12 times, maintaining the “buy” rating.
Risk warning: Risk that R&D progress falls short of expectations; policy changes bring the risk of falling prices.