Q2 performance improved month-on-month. The number and amount of new orders signed achieved a good increase of 2024H1. The company achieved operating income of 3.358 billion yuan, a year-on-year decrease of 9.50%; net profit to mother of 0.493 billion yuan, a year-on-year decrease of 64.50%; and net profit without deduction of 0.64 billion yuan to mother, a year-on-year decrease of 19.30%. Looking at Q2 alone, the company achieved operating income of 1.698 billion yuan, down 10.92% year on year and 2.28% month on month; net profit to mother was 0.258 billion yuan, down 68.56% year on year, up 9.66% month on month; net profit without return to mother was 0.337 billion yuan, down 18.19% year on year, up 11.29% month on month. The phased pressure on performance is mainly due to a decline in COVID-19 business and fluctuations in downstream market demand. The company actively responded to changes in the industry cycle, and the number and amount of new 2024H1 orders achieved good year-on-year growth. In view of fluctuating industry demand, we lowered our profit forecast for 2024-2026. The estimated net profit for 2024-2026 is 1.668/2.056/2.29 billion yuan (originally estimated 2.24/2.491/2.819 billion yuan), the corresponding EPS is 1.93/2.38/2.65 yuan, and the current stock price corresponds to a PE of 26.4/21.4/19.2 times. Considering the company's strong competitiveness as a leading clinical CRO in China, we maintain a “buy” rating.

Affected by multiple factors, clinical trial technical services were under phased pressure, and the 2024H1 clinical trial technical service was actively promoted to achieve revenue of 1.637 billion yuan, a year-on-year decline of 22.17%. By the end of June 2024, the company had 800 drug clinical research projects, an increase of 28 over the previous year; of these, there were 537 domestic projects, 208 single overseas projects, and 55 MRCT projects. At the same time, the company is vigorously developing emerging businesses such as clinical research on medical devices. By the end of June 2024, the company had 567 ongoing medical device projects, which had served more than 2,100 customers around the world; the registration team helped 2 products be registered and approved for marketing in China, and 29 IND/MRCT clinical trial applications obtained clinical approval in many countries.

The digital system business and SMO business are developing steadily, and integrated service capabilities continue to enhance 2024H1 clinical trial-related services and laboratory services to achieve revenue of 1.659 billion yuan, an increase of 5.84% over the previous year.

By the end of June 2024, the number of global service customers of the digital system business was about 330, with 824 projects in progress; the number of SMO projects increased from 1952 at the end of 2023 to 2110. 2024H1 completed 165 projects, providing services for 9 new Class I drugs approved in China; the number of execution laboratory service projects was 5,173, and Fangda Pharmaceuticals acquired pre-clinical DMPK and bioanalysis laboratories in Nerviano, Italy.

Risk warning: Risks such as changes in pharmaceutical regulatory policies, exchange rate fluctuations, and declining market demand for drug research and development services.