1H24 results are in line with our expectations

The company announced 1H24 results: revenue of 2.697 billion yuan, +41.6% year over year, excluding large orders, +0.8%, of which small molecule CDMO revenue was 2.195 billion yuan, excluding the impact of large orders, +2.5% year over year, and emerging business revenue 0.5 billion yuan, -5.8% year over year; net profit to mother of 0.499 billion yuan, corresponding net profit of 18.5%; in line with our expectations.

Development trends

The revenue of large pharmaceutical companies and overseas customers has been growing steadily, and there are sufficient orders in hand. 1H24, the revenue of large multinational pharmaceutical companies was 1.315 billion yuan, excluding large orders +12.5%, overseas revenue of 2.008 billion yuan, and excluding large orders of +5.1%. Among them, customer revenue from the European market was 0.178 billion yuan, +22.8% year over year, and customer revenue from the US market was 1.781 billion yuan, excluding the impact of large orders over the same period of the year.

1H24 added 114 new customers, and new orders increased by more than 20% year on year. Among them, 2Q24 increased significantly compared to 1Q24, and the growth rate of customer orders in the European and American markets exceeded average, reserving sufficient potential for performance growth.

In the small molecule commercialization stage, the business continued to grow, and the global layout was accelerated. 1H24, small molecule CDMO segment: 1) Commercialization stage: Revenue of 1.396 billion yuan, excluding large orders of +8.8%, delivery of 43 commercialization projects, 9 new commercialization projects, and implementation of commercial order projects representative of various industries. 2) Clinical stage: Revenue of 0.799 billion yuan, -7.0% year-on-year, and delivered 310 clinical stage projects, including 61 clinical phase III projects. The company expects 28 small molecule verification approval phase (PPQ) projects in 2024, which is a strong potential commercial order. 1H24, the company acquired R&D and API pilot production facilities in Sandwich, UK, and put them into operation in early August. In the future, the company will further promote overseas production capacity construction based on this.

Chemical macromolecules are progressing steadily. 1) Polypeptides: 1H24. The company accelerated the commercial production capacity of peptides. In 2024, the total production capacity of solid phase polypeptides reached 14,250L. At the same time, the company obtained mid- and late-stage peptide clinical projects from several multinational pharmaceutical companies, helping important domestic customers successfully pass the dynamic verification of GLP-1 peptide projects. 2) ADC: Continuing to promote the toxin-conjugate business, and is advancing 11 NDA projects for 8 customers in the manual order. 3) Oligonucleotides: 1H24 undertook 29 new projects, +70.6% year-on-year, while the company promoted the commercialization of CpG adjuvants.

Profit forecasting and valuation

As the industry is still in an adjustment cycle, we cut 2024/2025 net profit 6.6%/9.2% to 1.054 billion yuan/1.295 billion yuan. The current stock price corresponds to the 2024/2025 price-earnings ratio of 21.2/17.2 times. Maintaining an outperforming industry rating, we lowered our target price by 14.1% to 85.00 yuan, corresponding to 29.7 times the 2024 price-earnings ratio and 24.1 times the 2025 price-earnings ratio. There is 40.0% upside compared to the current stock price.

risks

There is a risk that capacity utilization falls short of expectations, competition increases risk, geopolitical risk, and exchange rate fluctuation risk.