Incident: Boteng shares released its 2024 semi-annual report. In the first half of 2024, the company achieved revenue of 1.352 billion yuan (-42.19%); net profit to mother of 0.17 billion yuan (YoY -141.43%); net profit after deducting non-attributable net profit of 0.174 billion yuan (-144.04% YoY). In Q2 2024, revenue of 0.674 billion yuan (YoY -29.82%), net profit attributable to mother was 0.075 billion yuan (YoY -170.72%), and net profit not attributable to mother was 0.081 billion yuan (-185.55% YoY).

Comment:

Gross margin increased quarterly, and the results of cost reduction and efficiency were beginning to show. In terms of profit margin, 2024 H1 achieved a comprehensive gross profit margin of 18.82% (-28.17pp), net profit margin of -12.58% (-30.12pp), deducted net profit margin of -12.88% (-29.78pp), factors such as delivery of large orders, insufficient capacity utilization, high operating expenses and fixed asset depreciation; the company continued to promote cost reduction and efficiency measures. 2024Q1 achieved a gross profit margin of 15.84%, gross profit margin of 21.81% in Q2, and gross margin increased quarterly. In terms of cost ratio, the cost rate for the 2024 H1 period was 35.00% (+6.60pp), with sales/management/ R&D/ finance rates of 5.70% (+2.31pp)/16.89% (+3.06pp)/12.45% (-0.86pp)/-0.05% (+2.06pp), respectively. The company's revenue growth rate reduced the cost rate, and actual cost investment decreased year-on-year.

The API CDMO continues to be upgraded, and capacity building is becoming more comprehensive. 2024H1, the API CDMO business achieved revenue of 1.251 billion yuan (-45% year over year), mainly due to large order deliveries in the first half of 2023, and no such revenue in the first half of 2024. Excluding large orders, the API CDMO business continues to show a “product upgrade+upstream and downstream collaboration+domestic and international diversion” situation. We expect long-term development: 1) delivered 408 projects in the first half of the year (about +26% year over year), signed 533 orders (excluding J-STAR, about +14% year over year), and introduced 31 new customers; 2) Product upgrades: 146 API products with high added value served in the first half of the year (+40 compared to year), achieved revenue of 0.298 billion yuan (+42% year over year); completed 2 PV projects Another 17 projects are being implemented; 3) Collaborative construction: the domestic team and the US team work together to serve more than 20 customers. Currently, the company's new high-activity API kilogram laboratory in New Jersey, USA; the R&D laboratory at the CDMO R&D and production base of the small molecule API in Slovenia has been completed and put into operation, and the construction of a pilot plant continues to be promoted; the company's global layout can provide customers with solutions from China, the US, and Europe, and is becoming more comprehensive.

Continue to lay out emerging businesses and build a driving engine for future growth. 2024H1, the company continues to promote new business construction, including: 1) pharmaceutical CDMO business: achieving revenue of 65.56 million yuan (+183%), serving 124 projects for 108 customers, introducing 13 new customers and signing new orders of about 0.113 billion yuan (about +40% year over year); 2) gene cell therapy CDMO business: achieved revenue of 19.04 million yuan (-18% YoY), introduced 29 new customers, 62 new projects, and signed new orders 0.062 billion yuan (+188% YoY); 3) Synthetic macromolecule and biomacromolecule CDMO business (TIDES, ADC): Achieved revenue of 9.54 million yuan, served more than 330 customers worldwide, and served 38 projects with 24 customers. We believe that although the new business has yet to bring positive profit contributions, the comprehensive business layout and capacity building are expected to provide continuous momentum for the company's subsequent development.

Profit forecast: We expect the company's revenue for 2023-2025 to be 2,922/3386/3,930 billion yuan, up -20.3%/15.9%/16.1% year-on-year; net profit to mother will be -0.128/0.315/0.401 billion yuan, up -148.0%/345.8%/27.3% year-on-year, corresponding to 2025-2026 PE of 20/16 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.