The company released its 2023 annual report and 2024 quarterly report. For the full year of 2023, the company achieved operating income of 1.73 billion yuan, a year-on-year increase of 8.2%; realized net profit of 200 million yuan, a year-on-year decrease of 37.2%; net profit after deducting non-return to mother was 180 million yuan, a year-on-year decrease of 33.8%. In the fourth quarter of 2023, the company achieved operating income of 430 million yuan, a year-on-year increase of 5.8%; net profit to mother was 43.31 million yuan, a year-on-year decrease of 33.0%; net profit after deducting non-return to mother was 19.9 million yuan, a year-on-year decrease of 14.7%. In the first quarter of 2024, the company achieved operating income of 377 million yuan, a year-on-year decrease of 1.56%; net profit to mother was 49.49 million yuan, a year-on-year decrease of 14.32%; net profit after deducting non-return to mother was 41.43 million yuan, a year-on-year decrease of 0.60%.

24Q1 profit improved significantly from month to month, and the front and back segments of the business were basically steady: 24Q1 achieved net profit of 49.49 million yuan, an increase of 14.2% month-on-month, and net profit after deduction of 41.43 million yuan, an increase of 110.4% month-on-month. The company's 24Q1 front-end and back-end business was stable, including revenue of 85.37 million yuan (+5.45%) from the pharmaceutical research business and the drug development and commercialization business, which achieved revenue of 292 million yuan (-3.45%).

Build an efficient innovation cooperation platform and create integrated CRDMO services: From a business perspective, the company's pharmaceutical research product and service business achieved revenue of 350 million yuan (+12.1% year-on-year) in 2023, with a gross margin of 70.4%. Among them, molecular block revenue was 320 million yuan (+4.9% YoY), accounting for 18.6%, and CRO revenue was 0.2 billion yuan (+1512% YoY), accounting for 1.4%. In 2023, there were more than 15,000 newly designed molecular blocks, and a total of more than 6,000 new molecular blocks were synthesized. In terms of products and services in the drug development and commercialization stage, the company's revenue in 2023 was 1.38 billion yuan (+7.2% YoY), gross margin was 35.5%, molecular block revenue was 540 million yuan (-10.3% YoY), accounting for 31.6%, and CDMO revenue of 8.4 billion yuan (+22.9% YoY), accounting for 48.4%. The company continues to strengthen the global layout of CMC's integrated services, and American Pharmaceutical Stone officially opened its process R&D center in West Chester. By region, in 2023, the company achieved domestic business revenue of 540 million yuan (+11.3% YoY), accounting for 31.5%; achieved overseas business revenue of 1.18 billion yuan (+6.8% YoY), accounting for 68.5%. Of these, revenue from North American customers was 980 million yuan, accounting for 56.8%; and revenue from European customers was 140 million yuan, accounting for 8.0%.

The customer base continued to expand, and demand growth slowed: in '23, the company had 744 active customers (+8.8% year over year), active customer revenue of 1.66 billion yuan (+13.2% year over year); 75 customers with large orders over 5 million (+25% year over year), and revenue of 1.36 billion yuan (+9.7% year over year).

Due to the phased impact of investment and financing in the biomedical industry, the growth rate of customer demand temporarily slowed. The number of the company's early (pre-clinical to phase II clinical) projects was more than 2,200; the number of clinical phase III and commercial projects was 62.

Profit forecast adjustment: Based on existing financial data, the industry is affected by the decline in investment and financing. We lowered our profit forecast for the next few years. The revenue growth rate was adjusted to 10-15% in 24 years, and the profit growth rate was slightly faster than revenue.

Profit forecast and rating: We lowered our profit forecast. The company's net profit for 2024-2026 is expected to be 235 million yuan, 297 million yuan, and 378 million yuan, respectively, up 19.3%, 26.1%, and 27.2% year-on-year; the corresponding PE is 30X, 24X, and 19X times, respectively, maintaining the “buy” rating.

Risk warning: The API industry's recovery falls short of the expected risk, and there is a risk that demand for pharmaceutical R&D will decline.