Incident Baicheng Pharmaceutical released its 2024 mid-year report. In 2024 H1, the company achieved revenue of 0.525 billion yuan (+23.88%), net profit to mother 0.134 billion yuan (YoY +12.35%), and net profit of non-attributable net profit of 0.123 billion yuan (YoY +3.13%). In Q2 2024, revenue of 0.309 billion yuan (YoY +17.65%), net profit attributable to mother was 0.084 billion yuan (YoY 0%), and net profit not attributable to mother was 0.074 billion yuan (-12.28% YoY).

Comment:

Continue to promote integrated construction and collaborative development of multiple businesses. 2024 H1, the company continues to improve the “pharmaceutical research+clinical trial+customized R&D and production” integrated platform construction. In 2024 H1, the company's CRO business (contract research and development+transformation of technological achievements + equity sharing) achieved revenue of 0.517 billion yuan (+27.26% year over year); among them, the technological achievement transformation business grew strongly, achieving revenue of 0.29 billion yuan (+52.43%); pre-clinical pharmaceutical research in commissioned R&D was reduced due to the impact of the industry environment and achieved revenue of 0.113 billion yuan (-9.09% year over year). Clinical services grew steadily, achieving 0.093 billion yuan (same ratio) compared to +32.22%). The CDMO business achieved a total internal and external revenue of 0.062 billion yuan, and the company's CDMO business accelerated the promotion of commissioned projects and independent R&D projects, enhanced customer stickiness, and provided a solid foundation for the company's two-tier development.

R&D investment reduces the company's profit performance and increases the cost ratio. In terms of profit margin, 2024 H1 achieved a comprehensive gross profit margin of 68.75% (+2.19pp), a net profit margin of 25.56% (-2.62pp), and a net profit margin of 23.46% (-4.72pp) after deduction; in terms of expense ratio, the 2024 H1 period expense ratio was 41.1% (+7.05pp), of which the sales/management/R&D/finance expense ratios were 1.31% (+0.30pp)/11.76% (-2.70pp)/28.32% (+6.66pp) /- 0.29% (+2.8pp)

Capacity building continues to be promoted, and new orders are growing steadily. 2024 H1, the company continued to enhance capacity building and achieved the following results: 1) The company has registered 121 applications (7 national top 3 declarations, 2 national first declarations) and obtained 74 approvals (11 national top 3 approvals); 2) In terms of independent R&D, nearly 300 projects have been set up and not yet converted, and 36 2024H1 projects have been converted; 3) In terms of equity sharing, the company has now carried out 89 R&D projects with sales equity shares (19 projects have been approved); 4) In terms of innovative drugs, the company has now carried out multiple new drug research and development projects and completed 4 Each Class 2 new drug IND was declared, 4 Class 2 new drugs obtained IND approval documents, and 1 Class 1 new drug completed clinical Phase I trials. 5) On the CDMO side, 2024H1 and its subsidiary Thermo Pharmaceuticals have completed implementation verification of more than 520 projects and registered 303 projects, ranking among the highest in the country, and are expected to further develop the collaborative diversion effect. With the company's R&D, production and service capabilities becoming more sophisticated, the company added an order amount of 0.711 billion yuan (tax included) in 2024, an increase of 13.38% over the previous year.

Profit forecast: We expect the company's revenue to be 1.18/1.46/1.88 billion yuan in 2024-2026, up 16.1%/23.9%/28.0% year on year; net profit to mother will be 0.3/0.39/0.52 billion yuan respectively, up 9.8%/29.3%/33.4% year on year, corresponding to 2024-2026 PE 14.3/11.1/8.3 times, respectively.

Risk factors: Risks such as increased competition in the industry, declining demand for R&D investment and outsourcing, policy risks, and new business development falling short of expectations.