The company's 1-3Q24 revenue/net profit to mother was 4.14/0.71 billion yuan (yoy -35.1%/-67.9%), of which 3Q24 revenue/net profit to mother was 1.443/0.211 billion yuan (yoy -18.1%/-59.7%). Excluding the impact of large orders, the company's 1-3Q24/3Q24 revenue increased 4.5%/12.2% year-on-year, the company's regular business revenue continued to grow, and the 3Q24 regular business revenue growth margin accelerated further. Considering the company's leading technology and continuous improvement in production capacity layout, I am optimistic that the company's regular business will maintain positive development over a long period of time. They all maintain “buy-in”.

Small molecule business: revenue growth of conventional core business accelerated marginally, global service layout steadily promoted revenue of 3.387 billion yuan (yoy +7.7% after excluding large orders), gross profit margin of 48.9% (yoy +1.2pct after excluding large orders); of these, 3Q24 revenue was 1.192 billion yuan (yoy +18.9% /qoq +22.5% after excluding large orders), and the company's regular core business development accelerated marginally. At the same time, the company continues to upgrade its management and operation system and actively promote the global layout process. Sandwich Site, the company's first R&D and pilot site in Europe, was put into operation in 3Q24 and has already begun accepting orders. We are optimistic that the base will further increase the company's revenue scale while improving the company's global supply chain system.

Emerging business: sector revenue is expected to return to growth in 4Q24

The 1-3Q24 revenue was 0.745 billion yuan (yoy -8.4%), with a gross profit margin of 20.0% (yoy-13.0pct, mainly due to the continued downturn in the domestic market, and some businesses are still climbing in production capacity); of these, 3Q24 revenue was 0.245 billion yuan (yoy -13.3%), mainly due to the slow recovery in biomedical financing, but the company expects sector 4Q24 revenue to resume growth based on ongoing orders and execution. The company continues to promote the development of emerging business markets, focusing on strengthening the peptide business expansion and production capacity. In 3Q24, the company obtained mid- and late-stage peptide clinical projects from several MNC pharmaceutical companies and signed commercialization orders for GLP-1 peptides with important domestic customers. By 3Q24, the company's solid phase peptide synthesis production capacity had exceeded 20,000 L. We are optimistic that the company will continue to strengthen its capabilities related to emerging businesses and actively contribute to increasing performance.

After excluding large orders, gross margin declined slightly. The three fee ratios increased year-on-year. The company's 1-3Q24 gross margin was 43.6% (yoy-10.5pct, yoy-1.0pct after excluding large orders), mainly due to the short-term decline in gross margin of the company's emerging business. The company's 1-3Q24 sales/management/R&D expense rates were 4.0%/12.9%/11.7% (yoy+1.9/+4.1/+3.7pct), respectively. The main reason was that the company's apparent revenue declined after the delivery of large orders, but various expenses continued to be invested.

Profit forecasting and valuation

Considering that downstream demand still needs to be repaired in the short term, we lowered the company's revenue growth forecast. The estimated EPS for 24-26 will be 2.89/3.63/4.51 yuan (previous value 2.98/3.74/4.66 yuan). The company is a leader in the CDMO industry, leading in technology and steady progress in the global layout. A/H shares were given 25-year 29/19x PE (A/H shares were comparable to the company's 25-year Wind with a consistent expected average expected average of 21/17x), corresponding to a target price of 105.20 yuan/75.04 HKD (previous value 83.54 yuan/52.24 HKD), all of which maintained a “purchase”.

Risk warning: Downstream product sales fall short of expectations, policy progress falls short of expectations, risk of exchange rate fluctuations.