2024H1 performance was under pressure in the short term, showing a recovery trend in the second quarter. In the first half of 2024, the company's revenue was 0.849 billion yuan (-16.1%), net profit attributable to mother was 0.17 billion yuan (-287.3%), and net profit not attributable to mother was 0.198 billion yuan (-358.0%). Among them, single-quarter revenue for the second quarter was 0.525 billion yuan (-18.4%), up 61.5% month-on-month compared with the first quarter; net profit for the second quarter was 0.102 billion yuan (both positive month-on-month).

The number of on-hand order items increased steadily, and the order amount improved month-on-month. As of the end of the first half of 2024, the company's overall order amount was approximately RMB 2.9 billion (-25.1%). In the first half of 2024, the number of new projects signed by the company continued to increase year-on-year. The amount of new orders signed was about 0.9 billion yuan (-30.8%). The main reason for the decline in the total amount of new orders was due to fluctuations in order prices due to increased competition in the industry. Order prices gradually stabilized from the fourth quarter of 2023 to the first and second quarters of 2024. The amount of new orders signed in the second quarter was about 0.5 billion yuan, an increase of more than 20% over the first quarter.

Improve and innovate non-clinical business technology platforms, and maintain the leading edge of the industry in core business. In the first half of 2024, the company's Beijing and Suzhou facilities passed the FDA's GLP inspection for the fifth time, further improving the company's non-clinical business quality system. In terms of business capabilities, the company has expanded new disease models and drug evaluation techniques in various fields such as ophthalmology, otology, and central nervous system, including laser-induced dry AMD models in mice, round window injection technology for large animals, and long-term administration methods within the primate sheath.

In addition, the company has strengthened the construction of analysis and testing platforms, covering various categories such as small molecule drugs and large molecule drugs, and has innovated many analytical techniques. The company's core competitiveness has been further strengthened.

The clinical services business is showing strong momentum. 1) Clinical CRO service: It has significant advantages in phase I and IIT early clinical research. Through the seamless connection between non-clinical and clinical research, the company has significantly reduced customer R&D and management costs and increased the review pass rate. 2) Clinical testing services: Continuous growth has been achieved, and the variety of service projects has continued to increase, covering clinical sample analysis and metabolic research of various innovative drug varieties. In particular, it has shown leading advantages in the field of gene therapy, helping many innovative drugs enter a critical clinical stage. By continuously improving biomarker detection capabilities for neurological diseases and applying technologies such as LC-MS/MS and digital PCR, the company has effectively improved the efficiency and quality of clinical testing and helped “Zhaoyuan Clinical Testing” accelerate towards world-class goals.

Risk warning: geopolitical risk; industry competition increases risk; risk of changes in the fair value of biological assets.

Investment advice: Considering the fair value loss of biological assets due to lower monkey prices, compounding the impact of increased industry competition on order prices and profit margins, the 2024-2026 profit forecast was lowered. The estimated revenue for 2024/2025/2026 was 2.042/2.268/2.522 billion yuan (originally 2024/2025/2026 2.389/2.652/2.948 billion yuan), and the net profit due to the 2024/2025/2026 net profit to mother is 0.091/ 0.3/0.335 billion yuan (previously 0.404/0.546/0.604 billion yuan in 2024/2025/2026), year-on-year growth rate -77.1%/+229.7%/+11.6%. The company's core business has a stable position in the industry, leading technical capabilities, sufficient long-term development potential, and maintains a “superior to the market” rating.