1H24 results fall short of our expectations
The company announced 1H24 results: revenue of 0.11 billion yuan, +35.0% year-on-year; net loss to mother of 0.11 billion yuan; net loss of 0.12 billion yuan after deduction; performance was lower than our expectations, mainly due to the fact that downstream customer financing has not improved significantly, and order prices are under pressure.
Development trends
Revenue grew steadily, and new orders maintained a month-on-month growth trend. 1H24, cell and gene therapy CRO revenue was 39.21 million yuan, or +18.52%, gross margin was 59.4%; CDMO revenue was 65.43 million yuan, +47.67% year over year, and gross margin was -83.42%. The gross margin pressure was mainly due to order prices not recovering and the capacity utilization rate was still climbing. 2Q24 signed a new order amount of 0.13 billion yuan, compared with 0.03 billion yuan and 80 million yuan in 4Q23/1Q24, maintaining a month-on-month growth trend. Currently, order prices are still at a low level, and the total number of orders has increased. As of 1H24, the company has helped customers obtain 39 domestic and foreign IND approvals, and has undertaken more than 370 CDMO projects for cell and gene therapy.
GMP production capacity has been released steadily and effectively, and investment in R&D continues. Part of the production capacity of the company's Lingang industrial base was officially put into operation in September 2023. As of 1H24, the total investment in the construction of the Lingang industrial base was 0.92 billion yuan. In 1H24, the company spent 29.08 million yuan on R&D, +11.54% over the same period, accounting for 25.72% of revenue; added 5 new patents, trademarks, etc.; added 5 new authorized patents, including 4 invention patents; and had a total of 42 authorized patents, including 26 invention patents.
The development and commercialization process of the cell and gene therapy industry continues to accelerate. In 2024, products related to the field of cell and gene therapy are entering clinical trials on a large scale. According to Pharmaprojects data, as of 1H24, the world has accumulated more than 4,047 gene therapy (including gene therapy and genetically-modified cell therapy), non-genetically-modified cell therapy and RNA therapy pipelines. Of these, out of 2,068 gene therapy pipelines, 318 projects are in phase II clinical trials and post-phase. The number of pipelines in China and the number of phase II and later projects is growing.
Profit forecasting and valuation
As downstream customer financing has not improved significantly and order prices are under pressure, we lowered 2024/2025 net profit to -0.223 billion yuan/-0.212 billion yuan (previously -1.16 billion yuan and -61 billion yuan). Considering the long-term growth of the cell and gene therapy CRO and CDMO industry, the company is a leading domestic company. We maintain our industry rating. Due to recent systemic adjustments in the pharmaceutical sector, we only lowered our target price by 34.2% to 5.40 yuan (based on the DCF valuation method), which has 28.0% upside compared to the current stock price.
risks
New drug development risks, capacity utilization falls short of expectations, and competition intensifies.