Incidents:

On October 29, the company released its 2024 three-quarter report. In the first three quarters of 2024, the company achieved operating income of 0.562 billion yuan, a year-on-year increase of 7.10%. Net profit to mother was 0.084 billion yuan, a year-on-year decrease of 32.93%, and net profit after deduction was 0.066 billion yuan, a year-on-year decrease of 32.35%.

Comment:

Revenue growth is in line with expectations, and equity incentives affect profits. In the first three quarters of 2024, the revenue side growth rate was basically in line with expectations. The decline in profit side growth was mainly affected by equity incentive expenses. If this effect was excluded, net profit to mother was 0.12 billion yuan, down 4.40% year on year, and net profit after deduction was 0.102 billion yuan, up 4.22% year on year.

Q3 Revenue grew steadily, and short-term profits were under pressure. Looking at the Q3 single quarter, 2024Q3 achieved revenue of 0.183 billion yuan, a year-on-year increase of 12.42%, net profit to mother of 0.026 billion yuan, a year-on-year decrease of 35.04%, and net profit after deducting 0.02 billion yuan, a year-on-year decrease of 28.03%. We judge that the main reasons why the profit side growth rate is under pressure in the short term are: 1) Equity incentive costs were affected; 2) Previous orders were mainly for oncology projects, which had a long conversion cycle and relatively reasonable prices. Recently, the proportion of oncology projects ordered has decreased, and the overall execution cycle is shorter and the price is lower, which is reflected faster on the reporting side.

Support rules for innovative drugs are expected to be introduced, and the company will usher in opportunities for rapid development. Support rules for innovative drugs are expected to be introduced in the future, thus driving the rapid development of the domestic clinical CRO industry. At present, the competitive pattern of the clinical CRO industry has not been solidified (the top 5 companies in the world occupied 65.4% market share in 2021, while the top 5 enterprises in China occupied 22.82% of the market share in the first half of 2023). The industry concentration continues to increase, and the company is expected to once again usher in rapid development opportunities.

Profit forecast and investment advice: We expect the company's revenue from 2024 to 2026 to be 0.781/0.894/1.034 billion yuan, up 8.31%/14.45%/15.62% year on year; net profit to mother is 0.138/0.195/0.232 billion yuan, up -14.83%/40.89%/18.79% year over year, corresponding to the current PE of 47/34/28 times, and continue to give a “buy” rating.

Risk warning: New orders fall short of expectations, risk of brain loss, environmental protection and production safety risks, falling order prices, and exchange rate fluctuations.