[Research Report Summary]
Event: On January 25, 2021, the company announced the 2020 annual performance forecast. In 2020, the company expects to achieve operating income of 50.35-5.222 billion yuan, up 34%-39%; net profit to mother of 11.33-1,187 billion yuan, up 107%-117% year on year; net profit after deducting non-return to mother of 777-828 million yuan, up 54%-64% year on year; adjusted net profit of 1,032-1,087 billion yuan, up 88%-98% year on year.
A leading integrated outsourcing service platform, with scale effects leading to continued high growth. The company's performance in 2020 continued to be outstanding. The full year is expected to achieve a year-on-year increase in revenue of 36.5% (median value, same below), a 112% increase in net profit due to mother, a 59% increase in net profit after deducting non-accounting standards, and a 93% increase in net profit due to adjusted non-accounting standards. Among them, the fourth quarter is expected to achieve operating income of 1,49-1,636 million yuan, an increase of 28%-45%; net profit to mother of 344-398 million yuan, an increase of 57-82%; and net profit without return to mother of 1.72 to 223 million yuan, an increase of -3% to +25% year-on-year. In terms of median value, revenue in the fourth quarter maintained rapid growth of more than 35% in a single quarter, and the main business showed a steady growth trend. We expect that all business segments of the company will maintain the growth trend of the first three quarters, that the laboratory service business and CMC service business will benefit from the continuous optimization and upgrading of customer quality and order quality, and that the clinical research service business will benefit from a gradual recovery after the normalization of the domestic epidemic. The company's overall operating efficiency is gradually improving, and the increase in gross margin is expected to contribute positively to profit growth.
It is one of the leading CRO+CMO companies in China, and the expansion of service capacity boundaries has brought about continuous growth. The company is a full-process integrated CRO+CMO company with comprehensive service capabilities for drug development and drug development, based in China and serving the world. In 2019, the company ranked third in the world for drug discovery and second for outsourced services in China, serving more than 1,000 customers per year. In the next 3-5 years, the CMC business will enter the production capacity release stage, and will continue to grow rapidly as the share of post-clinical projects increases, driving the company to continue to grow at a high rate. At the same time, the company deployed clinical research services and macromolecular services in the early stages to create long-term development momentum.
Profit forecast and valuation: Referring to the performance forecast, we raised the company's revenue in 2020-2022 to 51.08, 67.84 billion yuan, and 8.706 billion yuan, respectively; net profit to mother was 11.45 billion yuan, 15.28 billion yuan, and 19.95 billion yuan, respectively, up 109.17%, 33.48%, and 30.59% year on year (net profit before adjustment was 9.52, 12.93 and 1,751 billion yuan, respectively, up 74.06%, 32.73%, 35.44 %). The company is one of the leading CRO+CMO enterprises in China. The integrated service platform is perfect and customer stickiness is high. The CMC business benefits from the release of production capacity to maintain rapid growth for the next 3-5 years, and maintain a “buy” rating.
Risk warning: risk of R&D investment of innovative pharmaceutical companies falling short of expectations, risk of CMC business gross margin growth falling short of expectations, risk of deteriorating competitive environment, risk of exchange rate fluctuations