Description of the event

The company released its three-quarter report for 2024. In the first three quarters of 2024, the company achieved operating income of 0.562 billion yuan, an increase of 7.10% over the previous year; realized net profit of 0.084 billion yuan, a year-on-year decrease of 32.93%; and realized net profit deducted from non-mother of 0.066 billion yuan, a year-on-year decrease of 32.35%. In the third quarter of 2024, the company achieved revenue of 0.183 billion yuan, a year-on-year increase of 12.42%; realized net profit of 0.026 billion yuan, a year-on-year decrease of 35.04%; realized net profit deducted from non-mother 0.02 billion yuan, a year-on-year decrease of 28.03%.

Incident comments

Stock payments affect profit growth. Excluding the impact of amortization expenses of the 2023 restricted stock incentive plan, the company achieved net profit of 0.12 billion yuan to mother in the first three quarters of 2024, a year-on-year decrease of 4.40%, and achieved deduction of 0.102 billion yuan in non-net profit, an increase of 4.22% over the previous year.

Set up industrial funds to support the development of high-quality innovative drug companies. Norsig and CICC Capital Operation Co., Ltd. have jointly invested in the establishment of an industrial fund to support the development of innovative drug companies and innovative drug projects at the source and accompany the growth of high-quality R&D pipelines. On the other hand, we believe that it is also expected to help Norsig reach potential customers and projects earlier and obtain more and better orders over the long term.

On July 5, 2024, industrial funds completed the filing procedure with the China Securities Investment Fund Industry Association and obtained the “Securities Company Private Equity Fund Filing Certificate”.

Competition in the industry is stabilizing, and domestic policies are expected to restore demand. In July 2024, the Executive Meeting of the State Council reviewed and approved the “Implementation Plan to Support the Development of Innovative Drugs in a Full Chain” to comprehensively support the development of the biomedical industry and work together to promote breakthrough development of innovative drugs. Support rules for innovative drugs are expected to be introduced in the future, which will drive domestic pharmaceutical companies' R&D needs to recover and help the clinical CRO industry resume healthy competition and development.

We expect that from 2024 to 2026, the company will achieve net profit of 0.133 billion yuan, 0.183 billion yuan, and 0.236 billion yuan, respectively. The PE corresponding to the current stock price is 48/35/27 times, giving it a “buy” rating.

Risk warning

1. The popularity of pharmaceutical research and development falls short of expectations.

2. Risk of rising labor costs.