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 0.594 billion yuan, 9.17% year-on-year, net profit to mother of 0.072 billion yuan, a year-on-year decrease of 28.39%, and net profit after deduction of 0.063 billion yuan, a year-on-year decrease of 27.42%.

Comment:

Revenue fell short of expectations, and profits were under pressure. Looking at a single quarter, 2024Q3 achieved operating income of 0.199 billion yuan, a year-on-year increase of 2.03%, net profit to mother of 17.34 million yuan, a year-on-year decrease of 55.50%, net profit after deduction of 14.1 million yuan, a year-on-year decrease of 61.17%. The revenue side was lower than expected, and the profit side was under pressure. The main reason was that the company reserved business personnel according to business needs and increased personnel compensation costs.

New orders are expected to decline in the first three quarters, and double-digit growth is expected throughout the year. We anticipate:

1) The amount of new orders signed by the company declined year-on-year in the first three quarters of 2024, mainly due to the slow release of industry demand and demand from some customers, and adjustments in order prices; 2) The company is expected to achieve steady double-digit growth in new orders throughout 2024, mainly due to the company increasing its business development efforts and gradually transforming already bid projects.

The number of projects is rich, and the service capacity has been improved. The company is committed to undertaking SMO projects with innovative and high clinical value new drugs. The number of service projects is rich. Currently, the number of SMO projects being implemented is 2011, and has undertaken more than 3,400 international and domestic SMO projects. In addition, the company has continuously improved its customer service capabilities. As of 2024Q3, there were 4,692 employees, including nearly 4,500 business personnel, and a total of 940 clinical trial institutions, which can cover more than 1,300 clinical trial institutions, covering nearly 90 cities across the country.

Profit forecast and investment advice: We expect the company's revenue from 2024 to 2026 to be 0.839/0.935/1.066 billion yuan, up 10.32%/11.55%/14.02% year on year; net profit to mother is 0.095/0.112/0.141 billion yuan, up -29.53%/18.18%/25.65% year over year, corresponding to the current PE of 25/21/17 times, giving a “buy” rating.

Risk warning: risk of new orders falling short of expectations, risk of increased competition in the SMO industry, risk of order cancellation, risk of rising labor costs or loss of talent.