In the first half of the year, the short-term performance of CXO is under pressure, and the new contracts are showing signs of improvement; the API destocking is nearing completion, and the profitability is improving season by season.
According to the Futubull Finance APP, GTJA released a research report stating that the apparent performance of the CXO sector in H1 2024 is under pressure, with the trend of new contract orders improving. With the gradual delivery of orders and the ramp-up of production capacity, profitability is expected to improve in H2 2024. In Q1-Q2 2024, quarterly revenue and profit improved, and profitability hit bottom and rebounded. The industry destocking cycle is nearing completion, and terminal product prices are expected to stabilize and recover. In terms of targets, it is suggested to pay attention to Zhejiang Xianju Pharmaceutical (002332.SZ) for API, and Tigermed (300347.SZ) for CXO.
GTJA's main opinions include:
CXO: short-term performance is under pressure, with signs of improvement in new contracts. The sector's revenue in 2023A/2024H1 was 96.39/43.16 billion yuan, with yoy 0%/-10%; non-GAAP net profit attributable to the parent company was 17.29/6.97 billion yuan, with yoy -13%/-31%; demand side: Overseas financing amount in H1 2024 was $13.19 billion (+16%), showing significant improvement, while domestic financing amount was $2.15 billion (-19%), continuing to be under pressure. In H1 2024, the number of INDs for innovative drugs in China (CDE) was 313 (-21%), and NDAs were 46 (-19%).
Supply side: The number of employees in 2023A/2024H1 increased by yoy 1%/-1%; CAPEX expenditure decreased by yoy -26%/-26%, and the supply growth slowed, with the industry focusing on improving quality and efficiency. Due to the impact of the large orders related to the new crown, the decline in financing and investment, and the influence of market competition, the overall apparent performance of the industry is under pressure. Excluding the large order base, the regular business growth rates for Wuxi Apptec, Asymchem Laboratories, Porton Pharma Solutions, Tigermed, and Wuxi Bio were -0.6%/0.8%/-3.1%/-5.2%/7.7%, overall remaining stable. Due to the impact of financing and investment, the growth rates of new emerging businesses such as frontend laboratory services, early drug development, and CGT have declined, while the high prosperity of segmented tracks such as peptides and ADCCXO continues.
Leading companies in H1 2024 showed a trend of improvement in the amount of orders in hand/new signings: Wuxi Apptec's orders in hand reached $43.1 billion, with a 33.2% year-on-year increase after excluding specific commercial orders; Asymchem Laboratories' new signing order amount exceeded 20%; Pharmaron's new signing order growth rate exceeded 15%; Porton Pharma Solutions' small molecule APIs CDMO orders in hand exceeded 40%. With the gradual delivery of orders and the ramp-up of production capacity, profitability is expected to improve in H2 2024.
API: The destocking is nearing completion, and the profitability is improving season by season. The sector's revenue in 2023A/2024H1 was 108.39/56.47 billion yuan, yoy -4%/-2%; non-GAAP net profit attributable to the parent company was 5.86/5.35 billion yuan, with yoy -37%/4%. From 2022 to 2023, due to geopolitical conflicts, upstream raw material costs and freight rates rose, and terminal product prices were under pressure, as well as competition in the Indian industry chain, affecting the profitability of the API sector. In Q1-Q2 2024, quarterly revenue and profit improved, and profitability hit bottom and rebounded. The industry destocking cycle is nearing completion, and terminal product prices are expected to stabilize and recover.
In the first half of 2024, disruptions in the vitamin supply side drove up prices and improved the profitability of Zhejiang NHU. Chuan Ning Biotechnology and Shanghai Shyndec Pharmaceutical benefited from the high operation of antibiotic intermediates and product structure adjustments, accelerating performance. Sartans and ACE inhibitors bottomed out in the raw materials market, with the combination of scale effects and global market development along with an increase in domestic formulation, leading to high performance for Zhejiang Huahai Pharmaceutical. Leading enterprises are intensifying efforts to integrate the "intermediate - active pharmaceutical ingredient - formulation" and CDMO layout, opening up competition along the entire industry chain. Several blockbuster small molecule patented original research drugs are expected to expire in the future, driving demand for specialty active pharmaceutical ingredients. The launch of several heavyweight GLP-1 peptide drugs will drive incremental demand for related active pharmaceutical ingredients, and under the resonance of capacity, customers, and projects of Novo Nordisk, their performance in the first half of 2024 is expected to increase significantly.
Relevant symbols: API: Zhejiang Xianju Pharmaceutical (002332.SZ), Apeloa Pharmaceutical (000739.SZ), Novo Nordisk (688076.SH), Shenguo Biological (688117.SH), National Glaxo Pharmaceutical (605507.SH), Zhejiang Huahai Pharmaceutical (600521.SH), Aurisco Pharmaceutical (605116.SH), Chuan Ning Biotechnology (301301.SZ), Brightgene Bio-Medical Technology Co., Ltd. (688116.SH), Zhejiang Starry Pharmaceutical (603520.SH); CXO: Tigermed (300347.SZ), Pharmaron (300759.SZ), Asymchem Laboratories (002821.SZ). Benefiting symbol: Honyuan Pharmaceutical (688131.SH).
Catalysts: Product end demand exceeds expectations; industry price competition slows down; investment and financing improve.
Risk warning: Geopolitical risks; exchange rate fluctuations; intensifying industry competition risks; significant fluctuations in raw material prices.