Tigermed reported 1H24 revenue of RMB3,358mn, down 9.5% YoY, and attributable recurring net income of RMB640mn, down 19.3% YoY. 1H24 revenue/attributable recurring net income accounted for 40.9%/ 38.7%, respectively, of our previous full-year estimates, both falling moderately short of historical average levels. However, Tigermed delivered satisfactory QoQ growth in the bottom-line. Bolstered by an early recovery of customer demand across domestic and international markets as well as cost control initiatives, mgmt. aims to achieve sequential earnings growth in 2H24.
Solid order growth indicative of market recovery. Tigermed booked significant YoY growth in both the volume and value of new orders in 1H24, driven by multiple positive structural shifts in the China market. These include increasingly favorable policy support and active BD transactions with MNC companies. According to mgmt., the growth of new orders in 2Q24 accelerated from 1Q24, with this trend extending into July and August. Although domestic order pricing was relatively soft, Tigermed has observed pricing enhancements in certain regions within China. Together with healthy pricing of overseas orders, the company's overall order pricing remained stable.
Focus on cost structure optimization in 2H24. The gross profit margin (GPM) reached 41.5% in 2Q24, up from 37.8% in 1Q24, primarily due to the GPM recovery in Clinical related and lab services (CRLS) segment. Within the CRLS segment, both SMO and lab services experienced sequential GPM improvements in 2Q24, while the GPM of Data management and statistical analysis (DMSA) remained stable at a high level. Additionally, the company is taking steps to enhance the GPM of Clinical trial solution (CTS) segment. Combined with efforts to control SG&A expenses, we expect the net margin to sequentially improve in 2H24.
Advancing globalization efforts. Despite a reduction in employee number in 1H24 compared with end-2023, Tigermed expanded its overseas headcount by 90, mainly in North America and EMEA, indicating its persistent investment in global markets. In July, Tigermed acquired Japan- based Medical Edge to strengthen its DMSA capabilities for the Asia-Pacific region and to further explore business opportunities in the Japanese market.
Maintain BUY. Given there are still uncertainties over the pace of demand recovery, we cut our TP from RMB66.82 to RMB58.88, based on a 10-year DCF model (WACC: 10.95%, terminal growth: 2.0%). We forecast Tigermed's revenue to grow +0.2%/ +13.2%/ +16.4% YoY and attributable recurring net income to grow -3.9%/ +6.8%/ +19.9% YoY in 2024E/ 25E/ 26E, respectively.
