Matters:
Norsk publishes its 2023 annual report and 2024 quarterly report. In 2023, the company achieved revenue of 721 million yuan, an increase of 13.15% over the previous year, net profit of 163 million yuan, an increase of 43.27% over the previous year, after deducting non-net profit of 129 million yuan, an increase of 26.92% over the previous year. In the first quarter of 2024, the company achieved revenue of 177 million yuan, a year-on-year increase of 10.19%, and net profit to mother of 0.23 million yuan, a year-on-year decrease of 19.95%, after deducting non-net profit of 0.17 million yuan, a year-on-year decrease of 18.42%.
Commentary:
Facing new challenges in the industry and market demand in 2023, the company adopted a business strategy of reducing costs and increasing efficiency. Project execution progress and execution efficiency were greatly improved, revenue from clinical trial operation services and clinical trial site management services grew rapidly, and profit levels also increased markedly. In 2023, revenue was 721 million yuan, up 13.15% year on year, gross margin increased 2.94 pcts to 39.79%, including clinical trial operation service revenue of 354 million yuan (up 18.32% year on year), gross margin increased 7.50 pcts to 39.81%; clinical trial site management service revenue of 186 million yuan (up 20.58% year on year), gross margin increased 8.41 pcts to 29.57%; data management and statistical analysis service revenue of 80 million yuan (up 9.87% year on year). Gross margin fell 11.00pct to 43.47%. Due to the impact of amortization of equity incentive expenses, the management expense ratio increased by 1.34 pcts in 2023, but the sales expense ratio and R&D expense ratio were reduced by 0.07 pcts and 0.51 pcts respectively, and the company's overall net interest rate increased by 4.65 pcts. At the same time, the amount of new contracts signed by the company in 2023 was impressive, reaching 976 million yuan, an increase of 20% over the previous year. The new contracts mainly came from orders from pharmaceutical companies and biotechnology companies in China.
2024Q1 revenue grew steadily, and the profit side was greatly affected by the amortization of equity incentive expenses. 2024Q1's revenue was 177 million yuan, up 10.19% year on year, and gross margin was 37.84%, up 1.42 pcts year over year. The sales cost rate and R&D expense ratio were reduced by 0.58 pcts and 0.47 pcts respectively, while management expenses were greatly affected by the amortization of equity incentive expenses, and the management expense ratio increased by 5.96 pcts, causing great disturbance to the profit side. Excluding the impact of equity incentives and amortization, the net profit of 2024Q1 was 0.36 million yuan, up 23.83% year on year, after deducting non-net profit of 0.29 million yuan, up 43.67% year on year.
The domestic pharmaceutical market environment is gradually improving. Zhuhai, Beijing, Guangzhou and other places support the intensive introduction of pharmaceutical innovation policies, supporting the entire domestic innovative drug research and development chain from various aspects such as cash funding, speeding up the pace and approval of clinical trials, loosening pay-side restrictions/encouraging multiple payments, and encouraging investment and financing. The domestic market R&D demand is expected to gradually improve. The company is expected to gradually improve as an all-round clinical CRO service provider in the innovative drug industry chain. The demand side is expected to continue to improve.
Investment advice: Considering fluctuations in clinical CRO demand and the impact of amortization of the company's equity incentive expenses, we lowered our 2024-2025 profit forecast. We expect net profit to be 1.66, 2.20, and 281 million yuan (2024-2025 forecast values of 2.23 million yuan and 287 million yuan), respectively, with year-on-year increases of 2.3%, 32.2%, and 27.6%. We gave 24-year PE 36 times, a target market value of 6 billion yuan, corresponding to a target price of 62 yuan, and maintained a “recommended” rating.
Risk warning: 1. Downstream customer R&D investment falls short of expectations; 2. Industry competition intensifies; 3. Loss of core members of the company.