Key points of investment

Next Tuesday (August 20), a company listed on the Science and Technology Innovation Board “Innox” will ask for a quote.

Innox (688710): The company is a comprehensive R&D service (CRO) enterprise specializing in providing biomedical non-clinical research services. The company achieved operating income of 0.582 billion yuan/0.863 billion yuan/1.038 billion yuan respectively, with YOY of 74.30%/48.35%/20.32%; realized net profit to mother 0.087 billion yuan/0.135 billion yuan/0.194 billion yuan, and YOY of 104.68%/56.13%/43.60% in that order. In the latest reporting period, from January to June 2024, the company achieved operating income of 0.606 billion yuan, an increase of 15.01% over the previous year; net profit to mother was 0.096 billion yuan, a decrease of 16.05% over the previous year. According to the company's management's preliminary forecast, the company's revenue for January-September 2024 is expected to increase by 13.91% to 17.67% over the same period of the previous year, and net profit to mother decreased by 23.58% to 29.67% compared to the same period of the previous year.

Investment highlights: 1. The company is a central enterprise under the Sinopharm Group system; with a strong state-owned background, the company has now become one of the leading enterprises in the field of non-clinical safety evaluation in China. Sinopharm Group holds 44.23% of the company's shares and is the actual controller of the company; at the same time, the company has an experienced team of scientists, including 5 new drug review experts from the National Drug Administration headed by General Manager Chang Yan, 2 senior GLP experts, 4 ICH and domestic guidelines expert working group members, 12 certified toxicologists from China, and 3 US AAALAC testing experts. With a strong state-owned background and high-quality talent team, the company became the earliest in China (only 6 in China) non-clinical evaluation research institutes that also have NMPA and OECD GLP certification qualifications and meet the US FDA GLP standards. It has established deep strategic partnerships with leading domestic pharmaceutical companies such as Hengrui Pharmaceutical, Lixin Pharmaceutical, and CSPC Pharmaceutical Group; according to Frost & Sullivan statistics, the company's market share in the non-clinical safety evaluation segment in 2022 was 6.80%, ranking third in the country. According to the prospectus, as of the end of 2023, the company had ongoing orders of 1.327 billion yuan. The amount of new orders signed in the first half of 2024 was still increasing compared to the same period last year, and the company's business is expected to stabilize and improve. 2. The company actively ensures the stability of the supply of upstream raw materials for experimental use in upstream raw materials through equity cooperation and other means. Experimental monkeys are the company's main raw materials; according to the company's prospectus, the cost of experimental monkeys accounts for more than 60% of the company's raw material purchases, and the revenue generated by the business involving the use of experimental monkeys accounts for more than 40% of the company's revenue. In order to guarantee the stability of the company's upstream raw material experimental monkeys, the company established a joint venture with Anhui Shengpeng and Huangshan Cultural Investment in October 2021 to establish a new holding subsidiary, Huangshan Innox, which specializes in the production and sale of experimental animals. The company also acquired Huangshan Shengpeng's operating assets related to experimental monkey breeding in the same month. Anhui Shengpeng is a standardized breeding and experimental animal production base for experimental monkeys approved by the Anhui Provincial Forestry Department and established in 2015. It has rich resources for rhesus monkeys. 3. In March 2024, the company established a new wholly-owned subsidiary, Innox of the United States, to facilitate the advancement of the company's global development strategy. According to the company's prospectus, along with the development of China's CRO industry, combined with outstanding cost advantages, domestic clinical and non-clinical trial costs are only 30%-60% of those in Europe and the US. The trend of overseas order transfers has been prominent in recent years. The company is the earliest domestic organization with GLP standard certification and AAALAC international certification in developed countries, and has laid a solid foundation for undertaking overseas business; overseas revenue in 2023 has exceeded 40 million. In March 2024, the company set up an overseas branch in the US to be responsible for clinical bioanalysis of large and small molecules; on the one hand, it will help the company further expand overseas markets, and on the other hand, it can also meet the bioanalytical needs of domestic customers in international multi-center clinical trials through collaboration with domestic and foreign laboratories.

Comparison of listed companies in the same industry: According to the similarity of main business, Zhaoyan New Pharmaceutical, Medicis, Kanglong Chemical, and Pharmaceutical Kangde were selected as comparable listed companies of Innox. Looking at the comparable companies mentioned above, the average revenue of comparable companies in 2023 was 13.905 billion yuan, the comparable PE-TTM (excluding negative values/arithmetic average) was 19.09X, and the gross sales margin was 35.83%; in comparison, the company's revenue scale was lower than the average of comparable companies, and the gross sales margin was in the middle to high range of the same industry.

Risk warning: There is still a possibility that companies that have begun the inquiry process will not be able to go public due to special reasons; company content is mainly based on the content of prospectus and other public information; there is a risk that the selection of listed companies in the same industry is not accurate enough; there may be interpretation deviations in the selection of content data. The specific risks of listed companies are shown in the text.