Core views

The company achieved revenue of 1.62 billion yuan in the first three quarters of 2024, an increase of 17.6% over the previous year.

Net profit to mother was 0.143 billion yuan, an increase of 21.3% year over year. Benefiting from the rapid growth of the front-end business, the company's gross margin continued to improve. 24Q3 had recovered to 51.2%, with significant year-on-month increases, driving the company's net interest rate to increase markedly month-on-month. Currently, the company's front-end molecular blocks and tool compounds are actively exploring overseas markets and maintaining rapid growth. The overall back-end CDMO orders have remained stable, the ADC production line is operating at full capacity, and the construction of macromolecular production capacity at the Chongqing base is progressing in an orderly manner. At the same time, the company continues to reduce costs and increase efficiency within the company, the management expense ratio has declined, and operational efficiency continues to improve, which is expected to drive the company's profitability to continue to improve.

occurrences

The company released its 2024 three-quarter report

In the first three quarters of 2024, the company achieved revenue of 1.62 billion yuan, an increase of 17.6% over the previous year. Net profit attributable to mother was 0.143 billion yuan, an increase of 21.3% year on year, after deducting net profit of non-return to mother 0.13 billion yuan, an increase of 21.04% year on year. 24Q3 achieved revenue of 0.563 billion yuan, a year-on-year increase of 13.8%. Net profit attributable to mother was 0.073 billion yuan, up 213% year on year and 36% month on month. Net profit without return to mother was 0.063 billion yuan, up 194% year on year and 20.0% month on month.

Brief review

Revenue grew rapidly, and profit margins improved month-on-month to exceed expectations

In the first three quarters of 2024, the company achieved revenue of 1.62 billion yuan, an increase of 17.6% over the previous year. Net profit attributable to mother was 0.143 billion yuan, an increase of 21.3% year on year, after deducting net profit of non-return to mother of 0.143 billion yuan, an increase of 21.3% year on year. Q1-3 The company's front-end business, molecular block tool compounds and biochemical reagent business, benefited from rapid expansion in overseas markets, increasing its revenue share to 68%, while driving the company's gross margin to 47.6% and net profit margin to 8.7%, which continued to improve month-on-month; the back-end business revenue of APIs, intermediates, and formulations remained basically flat year over year. 24Q3 achieved revenue of 0.563 billion yuan, a year-on-year increase of 13.8%. Net profit attributable to mother was 0.073 billion yuan, up 213% year on year and 36% month on month. Net profit without return to mother was 0.063 billion yuan, up 194% year on year and 20.0% month on month.

The front-end business grew rapidly overseas, and the domestic front-end business was under short-term pressure in the first three quarters of 24, thanks to early preparations for overseas markets and maintained a rapid growth trend. By the end of Q3, the front-end had completed independent R&D and synthesis of more than 0.033 million products, and accumulated reserves of more than 0.132 million life science reagents, including more than 0.088 million molecular blocks and more than 0.044 million types of tool compounds and biochemical reagents. Molecular blocks are fully rolled out, the advantages of tool compounds are obvious, and products are constantly being enriched, driving the company to maintain rapid growth even under a large revenue volume. The company's global layout continues to advance, and warehousing centers in Europe, the United States, India and other places have been fully accelerated, and it has formed a trend where multiple overseas business centers collaborate with multiple domestic front warehouses to help expand business in new regions.

Back-end CDMO revenue in the first three quarters of 24 was basically the same. By the end of Q3, the company's active orders were about 0.42 billion yuan, which was basically the same as in half a year. However, the number of new projects signed increased by more than 20%. The number of generic drug projects in the company reached 384, and the total number of innovative projects exceeded 821. Back-end projects are mainly located in the Chinese, Japanese, Korean, American and European markets, and are mostly in pre-clinical and clinical phase I. Some products have already entered clinical phase II, clinical phase III, or NDA stages. The ADC sector in the innovative drug business continues to be hot. In the first three quarters, revenue increased by more than 45% year-on-year, the number of projects exceeded 80, and the number of active customers exceeded 800. Currently, the Maanshan ADC production line is basically operating at full capacity. As the Chongqing macromolecule base progresses in an orderly manner, the company is expected to build a complete “one-stop” ADC CDMO service platform and continue to enhance its competitiveness in the ADC CDMO field.

24-year outlook: The front-end accelerates back-end stabilization, and profit margins are expected to further restore the company's refined domestic market layout, actively expand the market abroad, develop more partners, and adhere to equal emphasis on innovation-driven and quality management.

Domestic competition in the front-end molecular blocks and tool compounds business is stabilizing, and the overseas layout continues to advance, gradually expanding the share of the company's products in the scientific research market and the international market, which is expected to further improve gross margin and human efficiency levels. As the back-end CDMO business capacity is gradually implemented and the capacity utilization rate continues to increase, the company's integrated advantages are expected to be further reflected. At the same time, the company continues to optimize internal resource allocation, further strengthen the company's talent pool, strengthen budget management, improve R&D and management efficiency, and comprehensively promote the company's high-quality development.

Financial analysis: Profit margins improved month-on-month, and internal control management results showed that in terms of expenses, the company's sales, management, R&D and financial expense ratios were 9.47%, 10.84%, 10.65%, and 1.52% in Q1-3 in 2024, with year-on-year changes of +2.09pp, -2.15pp, -1.84pp, and +0.11pp. The sales expense ratio has been rising year by year in recent years. It is expected to be related to the company's active market expansion and strengthening overseas marketing and promotion; the year-on-year decline in management expenses is expected to be related to the company's continued cost reduction and efficiency, strengthening internal control, and continuous improvement in operational efficiency; the R&D cost rate has decreased, and the growth rate of R&D expenses has generally remained stable. 2024Q1-3's gross profit margin was 47.58%, down 0.76 percentage points year on year, and the net profit margin was 8.70%, up 0.22 percentage points year on year. Compared with 2024H1 gross profit margin of 45.37% and net interest rate of 6.53%, the company's profit margin continued to improve from month to month. Profit margins are expected to continue to recover as the company's front-end life science reagent business continues to expand overseas and back-end production capacity is gradually released.

Profit Forecasts and Investment Ratings

As a front-end and back-end integrated layout enterprise from “molecular blocks and tool compounds” to “APIs and intermediates”, the company has unique advantages at home and abroad, and is expected to bring about long-term stable development through an “integrated” layout. The successful experience, management model and market strategy accumulated by the company in tool compounds in recent years have been successfully replicated in the molecular block business. The molecular block business is growing clearly. Based on this, we have made certain adjustments to the company's profit forecast. We forecast the company's revenue for 2024-2026 to be 2.26 billion, 2.72 billion and 3.3 billion yuan, respectively, with growth rates of 20%, 20% and 22%, respectively, and net profit to mother of 0.192 billion, 0.275 billion yuan, and 0.398 billion yuan respectively, with growth rates of 50%, 44% and 44% respectively. Corresponding PE valuations are 40X, 28X and 19X, maintaining the “buy” rating.

Risk warning: R&D falls short of expectations Risk: The company is an R&D-driven enterprise committed to building an integrated R&D and production platform of “molecular blocks and tool compounds+specialty APIs and intermediates+formulations”. As the company's layout in various fields gradually deepens, customer needs are becoming more diverse, the difficulty of R&D is increasing accordingly, and the requirements for the company's R&D capabilities have further increased. The company has many types of molecular blocks and tool compounds, APIs and intermediate products, with high added value, and there are certain industry barriers. Moreover, companies often make forward-looking layouts and invest in R&D in advance, and there is a risk that R&D may fall short of expectations. Risk of sales falling short of expectations: The company actively expands product categories through independent research and development and customer customization methods. The number of molecular blocks and tool compounds is rapidly increasing, but there is a risk that product sales will fall short of expectations due to issues such as marketing. Market competition intensifies risks: The company adheres to a global strategy. The international market is always dominated by several large international companies. At the same time, domestic enterprises are developing rapidly, and the company may face the risk of increased market competition; the risk of brain loss; and the risk of industry policy changes.