Joinn reported 1H24 revenue of RMB849mn, down 16.1% YoY, and recorded attributable recurring net loss of RMB198mn. The 1H24 revenue accounted for 36.5% of our full-year estimate, largely in line with its historical level. The bottom line was significantly affected by the RMB235mn fair value losses from biological assets, a non-operational, non-cash charge. The laboratory services, which represents the core business of Joinn, incurred a net loss of RMB15mn in 1H24, which has turned around with a net profit of RMB6mn in 2Q24.
Improving order signings indicating early signs of demand recovery. Despite the lasting pressure in the domestic biopharmaceutical industry in 1H24, Joinn exhibits early signs of a recovery in customer demand. The company signed new orders of ~RMB900mn in 1H24, a ~31% YoY decline. However, order signings in 2Q24 increased by approximately 20% QoQ to around RMB500mn, suggesting a stabilization in customer demand. Despite ongoing pricing pressures, the number of new orders recorded positive YoY growth in 1H24, particularly with ~20% YoY growth in 1Q24. As demand was still at a low level, Joinn's backlog decreased from RMB3.3bn as of end-2023 to RMB2.9bn as of mid-2024. Given Joinn has removed projects with low execution certainty from its backlog, the current backlog provides better predictability of future performance, in our view.
Fair value changes of biological assets turned positive in 2Q24. Joinn experienced a stabilization of the value of its biological assets (primarily non- human primates/ NHPs), coinciding with recovery in customer demand. The trend has resulted in a fair value gain of RMB49mn in 2Q24, a significant improvement compared to the fair value losses of RMB284mn/ RMB267mn in 1Q24/ 2023. Joinn calculates the fair value changes of biological assets based on the market price changes, which reflect the supply and demand for NHPs. The substantial fair value losses incurred for Joinn in 2023 and 1Q24 was a result of the declining client demand for drug safety studies using NHPs. Hence, as a major player in domestic drug pre-clinical R&D sector, the fair value gains of biological assets of Joinn in 2Q24 indicated a modest improvement in client demand.
Expansion of overseas capabilities: The board of directors of Joinn has approved a capital injection of US$30mn into its wholly-owned US subsidiary, Joinn California. This move is intended to enhance service capacity for US clients in non-clinical research, facilitating the conversion of orders to domestic sites. In 1H24, Joinn's US operations secured new orders of ~RMB140mn, down ~42% YoY, which could be attributed to high utilization rates restricting new order intake at its US facilities.
Maintain BUY. We revise our TP to HK$8.57 from HK$10.36, based on a 10- year DCF valuation with WACC of 14.3% and terminal growth of 2.0%, reflecting the lower earnings projections. We forecast Joinn's revenue to grow -12.0%/ +9.6%/ +17.1% YoY and adjusted net income to grow -63.3%/ +63.4%/ +59.3% YoY in 2024E/ 25E/ 26E, respectively.
