The company released its 2024 semi-annual report: the first half of 2024 achieved revenue of 8.574 billion yuan (yoy +1.0%), gross profit margin of 39.1%, yoy-2.8pct, achieved net profit of 1.499 billion yuan (yoy -33.9%), and achieved adjusted net profit of 2.25 billion yuan (yoy -20.7%).

Excluding COVID-related businesses, steady growth was achieved: 2024H1 non-COVID-19 revenue yoy +7.7%, of which post-clinical and commercial revenue yoy +11.7%. The main reasons for the decline in gross margin: 1) 2023H1 has two high-margin prepaid licensing deals, causing a high base; 2) China's capacity utilization rate declined due to the cancellation of COVID-19 projects; 3) Ireland/Germany/US new facilities are climbing; 4) continuous efficiency improvements such as WBS are partially offset. The main reasons for the decline in adjusted net profit are: 1) the impact of 2023H1 prepaid license transactions; 2) the layout of global operations and increased BD work; 3) the increase in expenses due to the independent listing of Pharmaceuticals.

Long-term drive for the “R+D+M” troika: 61 new projects were signed in the first half of the year, 9 of which came from Win-the-Molecule.

Before IND: Achieved revenue of 3.068 billion yuan (yoy +9.2%), excluding 2023H1 technology licensing large orders affecting revenue yoy +20% or more. On the project side, there were 359 pre-clinical development projects (a net increase of 20 over the end of '23), and 2024H1 successfully advanced 26 pre-clinical development projects to early clinical trials.

After IND: 1) Clinical Phase I/II: Affected by the reduction in new 2023H1 projects, 2024H1 achieved revenue of 1.893 billion yuan (yoy -2.9%), with a net increase of 21 and 6 clinical phase II projects; 2) Clinical Phase III/Commercialization: 2024H1 achieved annual revenue of 3.434 billion yuan (yoy -4.7%). As of 0630, the company had 56 clinical phase III (net increase of 5 compared to the end of last year) and 16 commercialization projects (excluding 8 COVID-19 projects and 1 (Inactive projects, 24 at the end of last year).

Backlog maintained a high level, consolidating revenue growth expectations: total outstanding orders of $20.1 billion (same as the same period last year), including $13 billion for uncompleted service orders (yoy -4.1%), $7.105 billion for uncompleted potential milestone payments (yoy +8.5%); total uncompleted orders of $3.642 billion (yoy +4.0%) over 3 years.

XDC achieved rapid growth and strong demand: according to the subsidiary Pharmaceutical Federation, achieved revenue yoy +67.6% and net profit yoy +175.5% in the first half of the year; as of 0630, the number of comprehensive service projects was 167 (110/143 for the same period last year/end of last year, respectively), including 9 PPQ projects (5 at the end of last year).

Investment advice: We are optimistic about the company's CRDMO business model. The leading technology platform enhances global competitiveness, the new base is gradually put into operation, and the capacity utilization rate is increasing. The company maintains the previous guidelines. In 2024, the apparent revenue yoy is +5-10%, excluding COVID-19, and YOY +8-14%. We expect net profit for 2024-2026 to be 3.6/4/4.6 billion yuan respectively, corresponding PE is 15/13/12 times, maintaining the “increase” investment rating.

Risk warning: Risks such as geopolitics, exchange rate fluctuations, and investment and financing environment fluctuations.