The company released its 2024 mid-year report. 2024H1 achieved operating income of 3.358 billion yuan, a year-on-year decrease of 9.50%; realized net profit of 0.493 billion yuan, a year-on-year decrease of 64.50%; after deducting non-return net profit of 0.64 billion yuan, a year-on-year decrease of 19.30%. 2024Q2 achieved operating income of 1.698 billion yuan, down 10.92% year on year; realized net profit of 0.258 billion yuan, down 68.56% year on year, up 9.66% month on month; net profit without return to mother of 0.337 billion yuan, down 18.19% year on year, up 11.29% month on month.

The number of the company's projects has maintained steady growth, and the workforce has improved quality and efficiency: 2024H1's on-site management team completed 165 projects; SMO on-site management services were provided for 9 new Class I drugs approved in China. The number of ongoing on-site management projects increased from 23 to 2110 at the end of 1952. The company actively responded to industry cycles and structural changes in the first half of the year, and the number and amount of new orders signed achieved a good increase compared to the same period last year. The company continues to optimize its employee structure. The number of 2024H1 employees is 9348, a slight decrease compared to 9701 at the end of 2023. The current employees include more than 1,000 professional clinical monitors, more than 2,800 professional clinical research coordinators, more than 800 data management and statistical analysis professionals, and more than 1,600 laboratory service teams.

The company's business performance is divided, which is greatly affected by the industry cycle: 2024H1's clinical trial technical service segment achieved revenue of 1.637 billion yuan, compared to 2.103 billion yuan in the same period last year, a year-on-year decrease of 22.17%.

The main reasons for the year-on-year decline in revenue in the sector include: 1) in the first half of 2023, revenue related to some specific vaccine projects in the sector, resulting in a higher base; 2) the year-on-year decline in domestic innovative drug clinical operation revenue, mainly due to industry development and the impact of the industry cycle. The amount of new orders signed for clinical operation of innovative drugs in China declined in 23, leading to a decline in execution workload in 24. Affected by competition in the domestic industry, the average unit price of new domestic clinical operation orders has declined. As the industry gradually recovers and the company takes positive countermeasures, the domestic innovative drug clinical operation business improved in 2024Q2 compared to 2024Q1. Clinical trial-related and laboratory services achieved revenue of 1.659 billion yuan, or 1.567 billion yuan in the same period last year, an increase of 5.84% over the previous year. It mainly benefited from sufficient business demand and significant efficiency improvements compared with the same period last year. The field management business within the sector achieved relatively rapid year-on-year growth.

The company continues to invest in overseas markets, and orders from North America have grown rapidly: the number of single-region clinical trials the company is conducting overseas (mainly including countries such as the United States, Australia and South Korea) has increased from 194 by the end of 2023 to 208 in 2024H1. 2024H1 has 55 international multi-center clinical trials (MRCTs) and has accumulated more than 133 MRCT project experience. Among them, the company's clinical business and new orders in North America continue to grow rapidly. Currently, there are nearly 100 clinical operation teams in the US, more than 45 ongoing clinical trials in the US, and more than 25 international multi-center clinical trials.

Profit forecast and rating: Considering changes in the biomedical financing environment and changes in market competition, we lowered our 2024 performance forecast. The revenue side growth rate was adjusted to remain basically flat in 2024, and profits fell 15% to 20%. We expect the company's net profit to be 1.643 billion yuan, 2.088 billion yuan, and 2.412 billion yuan respectively, down 18.9%, up 27.1%, and 15.5% year-on-year; corresponding PE is 26X, 21X, and 18X times, respectively, maintaining a “buy” rating.

Risk warning: Risk of declining demand for pharmaceutical R&D, risk of loss of core personnel, risk of exchange rate changes.