Core views

The company's revenue declined in the first three quarters of 2024 due to the impact of some CDMO projects and increased competition in the APIs sector. The profit side also declined a lot due to the decline in gross margin and interest income exchange gains and losses during the same period. The company continues to promote an international strategy and integrated API and formulation business, and actively lays out peptides, ADC and oligonucleotide businesses. Currently, it has accepted multiple peptide orders. Looking ahead to 24Q4, the API sector is expected to gradually recover profit margins through structural adjustment of products, and the CDMO sector will continue to grow steadily. At the same time, with the establishment of the company's overseas CRO platform and continuous drainage, the company's development is expected to accelerate further.

occurrences

The company announced 2024Q3 results

The company achieved revenue of 3.965 billion yuan in Q1-3 in '24, a year-on-year decrease of 13.36%, and realized net profit of 0.631 billion yuan, a year-on-year decrease of 34.74%. After deducting non-return net profit of 0.618 billion yuan, a year-on-year decrease of 35.04%. The company achieved operating income of 1.201 billion yuan in 2024Q3, a year-on-year decrease of 9.15%, and realized net profit of 0.156 billion yuan, a year-on-year decrease of 54.82%, after deducting non-return net profit of 0.15 billion yuan, a year-on-year decrease of 55.65%.

Brief review

Performance is basically in line with expectations, and API profit margins are under pressure

2024Q3 achieved operating income of 1.201 billion yuan, a year-on-year decrease of 9.15%, and realized net profit of 0.156 billion yuan, a year-on-year decrease of 54.82%, after deducting non-return net profit of 0.15 billion yuan, a year-on-year decrease of 55.65%. The performance was in line with the company's previous expectations.

The decline in revenue was mainly due to some projects in the CDMO sector falling short of expectations and increased competition in the API industry, but the decline in revenue in a single quarter has narrowed somewhat from month to month. The profit side declined more than revenue mainly due to 23Q3 companies having higher interest charges and exchange earnings. At the same time, competition in the 24Q3 API sector continued to intensify and gross margin declined further.

Actively lay out emerging fields, and production capacity construction is progressing steadily

The company has built a technology platform for peptide drugs, conjugated drugs and small nucleic acids. The core team members have more than 15 years of R&D and management experience, and officially established the TIDES division in June '24. The peptide platform has independently developed unnatural amino acid synthesis technology, developed non-classical solid phase carrier products, and has received multiple orders for peptides including hypoglycemic drugs.

At present, the Ruibo Taizhou (Phase 1) workshop was put into use on July 1, mainly for API projects of innovative domestic pharmaceutical companies. The order reserve is good, and the capacity utilization rate is expected to rise rapidly; the formulation factory has successfully passed many official audits and customer audits, and the Ruibo Suzhou pilot plant has begun to be put into use one after another. Ruibo America has carried out the second phase of the pilot plant installation and design work, which will further enhance Ruibo America's CMC project acceptance capacity.

24-year outlook: The API sector is recovering steadily, and new business segments are gradually unleashing potential. The API sector has entered the “inventory removal” stage of the industry. At the same time, in the face of competition from domestic and Indian companies, 24Q1-3 profit margins continue to be pressured. Q3 companies have begun to adjust their product structure to respond positively to changes in the industry. The company's CDMO production capacity has progressed steadily. Workshops such as Zhejiang Ruibo and Suzhou Ruibo have been in use for 23 years. Due to the weakness of the pet medicine market for 24Q1-3, revenue declined year-on-year, and Q4 is expected to remain stable and gradually return to normal growth. The peptide sector in the emerging business sector has received multiple orders. The Suzhou Ruibo peptide pilot plant has been put into use, and subsequent production capacity is still being laid out. The initial construction of the ADC and small nucleic acid platform was completed, and the project acceptance capacity was further enhanced; Ruihua Zhongshan completed delivery and began undertaking projects, including the original formulation and the late progress of Kangchuanji Generic Pharmaceuticals CRO, and the gradual expansion of the new business segment is expected to become a new driving force for the company's future growth.

Financial analysis: Expense rates increased during the period. Short-term profit margins were pressured by the company's continuous implementation of excellent operations, continuous optimization of a matrix management system oriented towards project operation, rapid improvement in project delivery efficiency, and continuous improvement in the company's cost ratio. The 24Q3 company's sales expense ratio, management expense ratio, R&D expense ratio, and financial expense ratio were 2.37%, 8.54%, 6.67%, and -0.17%, respectively. The year-on-year changes were +0.83pp, +1.22pp, +1.16pp, and +1.71pp. Affected by the decline in revenue, the expense ratio increased during the period.

At the same time, due to the continued decline in gross margin in the APIs sector, the company's 24Q3 gross profit margin was 33.68%, down 7.9 percentage points from the previous year, and the net interest rate was 13.09%, down 12.9 percentage points from the previous year.

Investment advice:

As a leading CDMO company, the company adheres to the strategy of “deepening” big customers and “expanding” emerging customers to achieve a sharp rise in the quantity and quality of CDMO pipelines. At the same time, we will continue to increase R&D and production capacity through the “build-in+outreach” approach to promote the high-quality and rapid development of the CDMO sector. We are optimistic that the company will continue to develop in the CDMO field in the future. We expect the company's revenue in 2024-2026 to be 5.75 billion yuan, 6.26 billion yuan, and 7.06 billion yuan, respectively, up 4%, 9%, and 13% year on year, and net profit to mother will be 1.01 billion yuan, 1.12 billion yuan, and 1.29 billion yuan respectively, up -2%, 11%, and 15% year on year, corresponding to PE 14 times and 13 times, respectively , 11 times, maintaining a “buy” rating.

Risk warning: Major customer dependency risk: the company is highly dependent on the demand of a single customer, and falling customer demand or product sales falling short of expectations may pose a risk to the company; orders falling short of expectations: the company's services are mainly innovative pharmaceutical raw materials and intermediates in the sales stage of patented drugs. After the launch of innovative drugs, sales volume falls short of expectations due to various factors such as market promotion, doctors' and patients' medication habits, or the need to face generic drug competition when the patent expires, may affect the company's future orders; Market competition intensifies risk: The domestic CDMO industry is developing rapidly and the market size is expanding rapidly. The company may face the risk of increased market competition; the risk of policy changes: Domestic drug administration supervision policies have changed greatly. In recent years, the implementation of the marketing licensor system (MAH), generic drug consistency evaluation, volume procurement, and review and approval related to original auxiliary packages and pharmaceutical preparations has caused profound changes in API production. The company needs to adjust its development strategy according to the policy in due course, and there is a risk that the company will have an impact on business operations due to inability to quickly adapt to policy changes; Risk of exchange rate fluctuations: The company's overseas business accounts for a relatively high share, and the US dollar and euro are the main settlement currencies.