Key points of investment

The company sold shares in overseas participating companies, and we expect to make a positive contribution to the profit side in 2024.

Event: Sale of PROTEOLOGIX shares, enhanced cash flow

May 17 Company Announcement: PROTEOLOGIX intends to sell PROTEOLOGIX as a whole to Johnson & Johnson through a merger and acquisition. As a shareholder of PROTEOLOGIX, after comprehensively analyzing the biopharmaceutical market and the core technology and business conditions of the target company, the company plans to agree on the overall sale arrangement of the target company, cooperate with PROTEOLOGIX to transfer all of the shares directly held by Kanglong Hong Kong Investment to Johnson & Johnson in consideration of about US$102.1 million, and sign the relevant transaction documents.

Referring to the amount invested in PROTEOLOGIX in the company's history, the company signed an investment subscription agreement on September 10, 2021, invested 3 million dollars of its own capital to subscribe for 7.27% of PROTEOLOGIX's shares, signed an additional investment subscription agreement on November 14, 2022, and invested an additional 4 million dollars of its own capital to subscribe to newly issued PROTEOLOGIX shares through Kanglong Hong Kong Investment. After this additional investment was completed, the company held PROTEOLOGIX through Kanglong Hong Kong Investment The shareholding ratio increased to 12.44%. As of May 18, the company directly held 10.21% of PROTEOLOGIX's shares through Kanglong Hong Kong Investment after all employee shares and share incentive shares already issued by PROTEOLOGIX were fully diluted. From the company's investment amount (3 million US dollars+4 million US dollars) and sale price of 102.1 million US dollars, it can be seen that the company's cash flow will be further strengthened after the sale is completed.

Orders: CDMO orders are stronger, and they are optimistic about 24-26 revenue. According to the 2024 quarterly report ppt data disclosed by the company, the company's 2024Q1 new orders increased 20% + year over year, of which new orders for laboratory services increased 10% + year over year, and new orders for CMC (small molecule CDMO) services increased 40% + year over year. We believe that the company's long-standing CDMO business is expected to be commercialized along with more pipelines, unleashing greater flexibility. It is also expected to support the company's goal of 10% + revenue growth for the full year 2024, and even maintain steady or even faster revenue growth in 2025-2026.

Profit forecasting and valuation

We have raised our 2024 profit forecast to take into account the company's return on some of its investments after the sale of assets. We expect the company's EPS to be 1.08, 1.15, and 1.47 yuan in 2024-2026 (before adjustment, the 2024-2026 EPS was 0.93, 1.15, and 1.47 yuan, respectively), and the closing price on May 20, 2024 corresponds to 20 times the 2024 PE, maintaining the “buy” rating.

Risk warning

Management risks brought about by accelerated business layout, short-term fluctuations in orders, management challenges caused by clinical business layout, and risks of new business expansion falling short of expectations.