Matters:

The company achieved revenue of 0.773 billion yuan (+10.73%) in Q3. Net profit to mother was -0.036 billion yuan (-187.72%), and net profit after deduction was -0.039 billion yuan (-211.61%).

Ping An's point of view:

Accelerate core business signing to achieve faster COVID-19 growth

Driven by internal and external factors, the company has continued to improve small molecule CDMO orders since 24Q1. As of 24Q3, the company's small molecule orders have increased by more than 40%. As some orders entered the delivery phase in the second half of the year, this recovery began to be shown on the profit statement side. In Q3, revenue of 0.773 billion yuan was achieved in a single quarter, and orders increased by about 29%.

Considering the execution cycle of the CDMO scale production business, it is expected that this improvement trend will continue to be reflected in 24Q4 and the future.

The mismatch of production capacity has improved and superimposed to improve quality and efficiency, and profit margins have increased

The company's consolidated gross margin in Q3 was 31.09% in a single quarter, continuing the quarterly improvement trend (Q 115.84%, Q2 21.81%). The improvement in gross margin is mainly due to (1) the release of high-value-added projects and an increase in revenue share; (2) increased revenue recognition, and better allocation of fixed costs.

(3) In the first half of the year, the company promoted quality and efficiency, and fixed expenses were controlled. On the other hand, the increase in revenue has also brought the expense rate back to normal. Following this trend, the company is expected to return to profitability in 25 years.

Maintain a “Recommended” rating. According to the company's order execution and cost control pace, the profit forecast for 2024-2026 was adjusted to net profit attributable to mother - 0.222, 0.134, 0.41 billion yuan (originally -0.185, 0.053, 0.312 billion yuan). Improving the industry environment+recovering profitability is expected to drive the company's market value restoration and maintain the “recommended” rating.

Risk warning: 1) Geopolitical factors may affect overseas business acceptance; 2) Investment in innovative drugs