Incident: Gloria Ying published its 2024 interim report. In 2024 H1, the company achieved revenue of 2.697 billion yuan (-41.63% YoY), net profit attributable to mother 0.499 billion yuan (YoY -70.40%), after deducting non-attributable net profit of 0.448 billion yuan (-71.41% YoY). In Q2 2024, revenue of 1.298 billion yuan (YoY -45.31%), net profit attributable to mother was 0.217 billion yuan (YoY -79.44%), and net profit not attributable to mother was 0.194 billion yuan (-79.55% YoY).

Comment:

The reduction in gross margin of commercial CDMO services affects profit performance, and the company actively explores the global market.

In terms of profit margin, 2024 H1 achieved a comprehensive gross profit margin of 42.15% (-10.92pp), net profit margin of 18.50% (-17.99pp), net profit margin after deducting 16.62% (-17.30pp) of non-return net interest rate (-17.30pp). The gross margin of the commercial CDMO business, which accounts for the most part of the company's revenue, decreased, affecting profit-side performance; in terms of expense ratio, the 2024 H1 period was 22.42% (+9.34pp), with sales/management/ R&D/finance expense ratios of 3.80% (+2.02pp), respectively /13.42% (+6.17pp)/12.19% (+5.19pp)/-6.99% (-4.04pp), the company actively invests in sales expenses to explore the global market.

After removing large orders, the small-molecule CDMO business grew slightly, and the growth rate of emerging businesses declined slightly.

In 2024 H1, the small molecule CDMO business achieved revenue of 2.195 billion yuan (-46.28% year over year), with a year-on-year increase of 2.49% after excluding 2023Q1 large order revenue. Among them, small-molecule commercial CDMO achieved revenue of 1.396 billion yuan (-56.75%, +8.82% after excluding large orders), and confirmed 43 revenue (9 new); small molecule clinical CDMO achieved revenue of 0.799 billion yuan (-6.97% year over year), confirming revenue There are 310 projects (61 Phase III projects), and the company anticipates 28 PPQ projects in 2024 based on ongoing orders, forming sufficient commercial order reserves. Emerging businesses achieved revenue of 0.5 billion yuan (-5.77% year over year), mainly due to the continued slump in the domestic market and the decline in production capacity in some businesses.

Ongoing orders guarantee growth, and emerging businesses and overseas layouts drive long-term development. On August 28, 2024, excluding confirmed revenue for the first half of the year, the company's on-hand orders totaled $0.97 billion, which provided some support for the company's subsequent performance. The company continues to promote new business layouts such as chemical macromolecule CDMO, formulation CDMO, clinical CRO, biomacromolecule CDMO, technology export, and synthetic biotechnology. Ongoing orders for 2024H1 chemical macromolecule CDMO increased 119% year-on-year, with peptide production capacity reaching 14,250L; the company expects the new formulation production capacity to be put into operation within 2025, with a single production line producing 40 million units per year; breakthroughs in technology output have achieved revenue of nearly 50 million yuan. The company also accelerated the overseas production capacity layout, and the UK Sandwich Site was officially put into operation in early August.

Profit forecast: We expect the company's revenue for 2024-2026 to be 5.939/6.83/8.1 billion yuan, up -24.1%/15.0% 18.6/% year on year; net profit to mother will be 1.211/1.46/1.837 billion yuan respectively, up -46.6%/20.6%/25.8% year on year, corresponding to 2024-2026 PE 18/15/12 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.