Incident Overview

The company announced its 2024 mid-year report: 24H1 achieved operating income of 2.697 billion yuan, a year-on-year decrease of 41.63%, realized net profit of 0.499 billion yuan, a year-on-year decrease of 70.40%, and realized deduction of non-net profit of 0.448 billion yuan, a year-on-year decrease of 71.41%.

Analytical judgment:

Performance showed steady growth, and the order side showed marginal improvement

The company's 24H1 achieved revenue of 2.697 billion yuan, a year-on-year decrease of 41.63%. Excluding the impact of large orders, the small-molecule CDMO business achieved revenue of 2.195 billion yuan, an increase of 2.49% year-on-year after excluding the impact of large orders, and 0.5 billion yuan in revenue from emerging businesses, a year-on-year decrease of 5.77%. Looking at the subregion, customers in the US market achieved revenue of 1.781 billion yuan, a year-on-year increase of 26.92% after excluding large orders, and customers in the European market achieved revenue of 0.178 billion yuan, an increase of 22.75% year on year. Overall, European and American customers achieved a rapid growth trend; domestic market customers achieved revenue of 0.69 billion yuan, an increase of 9.96% year on year, showing weak growth due to domestic biomedical investment and financing. Looking ahead, performance will gradually resume rapid growth over the next 3 to 5 years, considering the impact of a slightly higher growth rate of orders from European and American customers and the continued strengthening of business capacity.

(1) The small molecule CDMO business showed steady growth, and the outlook for the future showed marginal improvement. The company's small-molecule CDMO business 24H1 achieved revenue of 2.195 billion yuan, a year-on-year increase of 2.49% after excluding the impact of large orders, and its corresponding gross profit margin of 47.19% remained at a relatively high level in history. The company 24H1 serves 43 commercialized projects, 61 phase III clinical trials, and 249 pre-clinical and early-clinical projects, showing a continuous upward trend compared to 23H1. At the same time, the company has 28 PPQ projects in 2024, and continues to reserve commercialization projects to lay the foundation for medium- to long-term growth in performance. Considering the continued growth of reserve projects and the implementation of PPQ verification projects, we judge that the small-molecule CDMO business will show marginal improvements.

(2) Emerging businesses are affected by the downturn in the domestic market and are under overall pressure. The company's emerging business 24H1 achieved revenue of 0.5 billion yuan, a year-on-year decrease of 5.77%. The corresponding gross margin was 20.29%, a significant year-on-year decline, mainly affected by factors such as rising production capacity. The company continues to accelerate the commercial production capacity of peptides. In 2024, the total production capacity for solid phase peptide synthesis will reach 14,250L to meet subsequent domestic and foreign customer needs, and also add business certainty to the company.

Accelerate overseas production capacity layout and add impetus to the company's medium- to long-term performance growth

The company 24H1 took over the British Sandwich Site, which mainly satisfies pre-clinical to post-clinical project acceptance, bringing CMC process support to the future layout of commercial production capacity bases in Europe.

After the lease is obtained, the company will undertake its R&D and production equipment, a talent team with an average of more than 15 years of relevant experience, and comprehensive drug research and development technology to position and serve international customers, adding certainty to future performance growth as a step in the international layout. The UK Sandwich Site will be officially put into operation in early August and will further improve the company's global supply chain system.

Investment advice

As a leading small-molecule CDMO supplier in China, the company looks forward to continuing to further develop small-molecule “intermediates+API+ formulations” integrated service capabilities in the future. Furthermore, it will continue to strengthen its layout in the field of synthetic macromolecules and biomacromolecules to protect the company's medium- to long-term performance growth. Taking into account factors such as the impact of large order confirmation and increased profitability and the continued downturn in the domestic and foreign investment and financing environment, the profit forecast for the previous period was adjusted, that is, the 24-26 operating period was adjusted from 6.375/7.764/9.283 billion yuan to 5.961/6.866/8 billion yuan, and EPS was adjusted from 3.15/4.11/4.95 yuan to 2.95/3.64/4.32 yuan, corresponding to the closing price of 63.67 yuan/share on August 30, 2024, PE was 22/18/15 times, respectively, maintaining a “buy” rating.

Risk warning

Risk of loss of core technical backbone and management, risk of increased competition, risk of loss of core technical personnel, risk of exchange rate fluctuations