Source: CITIC Securities Research
Authors: Li Chao, Chen Wang
Revenue and profit growth in the synthetic biology sector in 2023 and 2024Q1 was impressive. Currently, the industry's valuation is significantly lower than the average valuation level for the past 3 years.
In terms of fundamentals, new products and new production capacity of related companies are gradually being implemented, and future revenue and profits are expected to maintain a steady growth trend;
In terms of valuation, the sector's valuation level is expected to continue to recover as major policies are catalyzed in the future.
We believe that the core competitiveness of current biomantry companies lies in product development and implementation capabilities, and we are optimistic about targets with successful cases, leading positions, high-quality product reserves, and a boom in downstream demand.
The performance of major companies in the synthetic biology sector increased in 2024Q1
The synthetic biology sector (Wind Synthetic Biology Index constituent stocks) had operating income of +7.3% year-on-year and net profit of +15.5% year-on-year; 2024Q1 operating income was +13.4% year-on-year, and net profit attributable to mother +64.8% year-on-year.
In terms of major companies, Huaheng Biotech, Chuan Ning Biotech, Kaisai Biotech, and Jia Biyou had a year-on-year revenue of +36.6%/+26.2%/-13.4%/+2.4%, net profit to mother +40.3%/+43.9% YoY; 2024Q1 revenue +25.1% /+20.0%/+35.4%/+33.3%, net profit to mother compared with +6.6%/+101.0%/+83.2 %/ +69.9%.
Major synthetic biology companies are expected to launch new products and new production capacity in 2024. As new product launches and new production capacity climb, we expect the revenue and profits of related companies to maintain a steady growth trend.
The current valuation level of the synthetic biology sector still has a lot of room for restoration
As of April 30, 2024, the price-earnings ratio of the synthetic biology sector was 38.4 times, which is significantly lower than the average valuation level of 47.3 times in the past 3 years. At the same time, considering subsequent policy catalysis, we believe there is plenty of room for upward growth in sector valuations.
The ratio of total shareholding market value of funds in the synthetic biology sector to the total market value of listed companies in the sector increased from 1.2% at the end of 2020 to 13.3% at the end of 2023. At the end of 2023, the total shareholding market value of Huaheng Biotechnology/Chuan Ning Biology/Kaisai Biology/Jia Biyou funds accounted for 47.7%/2.0%/10.3%/5.4% of the total market value in circulation of listed companies.
The industrialization of synthetic biology continues to accelerate
Synthetic biology technology is rapidly developing in the direction of practical application and industrialization. Policy support from governments, hot capital market financing, and the layout of traditional industry giants have accelerated this trend. Under the core logic of “cost reduction+emission reduction+innovation” in biomantry, the fundamentals of the industry have been improving for a long time, new products and new production capacity of related companies are gradually being implemented, and revenue and profits are expected to maintain a steady growth trend.
According to BCC Research, the global synthetic biology market is expected to reach US$171/49.8 billion in 2023/2028, corresponding to a CAGR of 24% from 2023-2028. Of these, the global synthetic biology market size in the fields of medical health/food and agriculture/chemical industry/consumer goods/professional research in 2028 is US$133/127/99/36/10.5 billion US dollars, respectively.
A national biotechnology and biomanification action plan is expected to be launched in the near future
The “2024 Report on the Work of the Government” mentions “actively building new growth engines such as biomantry, commercial aerospace, and low-altitude economy”, and the strategic importance of biomaneling as a new quality of productivity continues to be recognized by the country.
Tan Tianwei, an Academician of the Chinese Academy of Engineering, said in an interview at the 2024 Zhongguancun Forum annual meeting that bioeconomy is expected to become the fourth industrial revolution in the future after the agricultural revolution, industrial revolution, and digital revolution. Academician Tan also said that currently, under the leadership of the Development and Reform Commission, the Ministry of Industry and Information Technology and the Ministry of Science and Technology, and other national ministries and departments are jointly developing a national biotechnology and biomanting action plan, which is expected to be introduced in the near future. “Biomedicine +” is a key component of it, including “biomantry+pharmaceutical+agriculture”, “biomaging+chemicals and materials”, and “biomantry+environmental protection.”
risk factors
Raw material prices fluctuate; industry competition intensified; policy support fell short of expectations; market development and promotion of new products fell short of expectations; downstream demand fell short of expectations.
investment strategy
We believe that the core competitiveness of current biological manufacturing companies lies in product expansion and implementation capabilities. We are optimistic about targets with successful cases (opening up biological manufacturing processes and product implementation capabilities), leading positions (technical advantages or market collaboration to increase the probability of new product landing), high-quality product reserves (with potential for product expansion and large potential market space and good pattern), and downstream demand.
Editor/Jeffy