Report guide
Fangda Holdings is in the acceleration period of new business and new capacity expansion, and the undervaluation brings an excellent investment window.
On July 29, the company announced the completion of the acquisition and delivery of Quintara Discovery, an American DMPK CRO company. We believe that with the introduction of the new business segment in China and the gradual fullness of the integrated layout of laboratories in North America, the company is expected to complete the preclinical integrated CXO layout of China and the United States in early 2022, and accelerate the realization of new drug service capabilities and collaboration with Tigermed.
Main points of investment
Market performance: h-share price adjustment, pay attention to China News's support to the market on July 26, 2021, the impact of the Hong Kong stock market education "double reduction document" and the slowdown in the pace of US economic recovery, US bond yields and other factors suffered large fluctuations. Within a week, the Hang Seng Index fell more than 6%, and Fonda Holdings fell 15%. Based on our continuous tracking of the company, we believe that the volatility of the company's stock price has nothing to do with fundamentals. On the contrary, considering the low basic effect of the performance in the first half of 2020, the recovery of the 2021H1 epidemic and the increasing capacity of new drug services, we believe that there is expected to be greater performance flexibility in the first half of 2021, and the company's investment attractiveness will be highlighted in the first half of 2021.
Scarcity: Sino-American layout, front store and back court, complying with the innovation and upgrading of Fang Da Holdings, founded in Pennsylvania in 2001, is the bioanalysis CRO of TOP3 in the United States. It has gradually expanded its business in China since it was controlled by Tigermed in 2014. In our review, we found that the company can show the differentiation and scarcity advantages of the two platforms in terms of capacity composition, layout rhythm and business distribution. After targeting and acquiring some cutting-edge technology platforms with the help of rich resources in the United States, the company uses the dividends of Chinese engineers to lead the coordinated development of China and the United States. We believe that with the help of the rich cutting-edge technology resources in the US market, the company is expected to gradually highlight the advantages of technological synergy in the context of the continuous upgrading of domestic and international innovative drug research and development.
In the short term: preclinical services are ready to be launched, and accelerated release from 2022. In the short term, the company's preclinical business in China (DMPK, Security Review, Central Laboratory, etc.) will quickly complete the construction of technical capabilities of the US standard, and the business presidents of North America and China will also be replaced by senior executives with more than 20 years of preclinical experience in 2020 to assist the company to achieve a breakthrough in management capability. Superimposing the potential customer base of Tigermed, the controlling shareholder, and the company's strong overseas brand strength, we believe that with the launch of new capacity from 2022, the revenue side is expected to maintain 40% of CAGR from 2022 to 2024, and the profit side is expected to contribute 50% of CAGR with the increase of capacity utilization.
Long-term: with the transformation from BA laboratory to preclinical integration CRO, synergy highlights with the continuous construction of the company's preclinical integration capacity, from 2022, the company's preclinical laboratory business in North America will be equal to the original main advantage business BA, while China will gradually complete the strategic layout of transformation from preclinical integration CRO with the release of production capacity. We believe that this is of great significance not only for the promotion of the future ceiling of the company, but also for the realization of the collaborative ability with Tigermed clinical CRO.
Profit forecast and valuation
We expect net profit of $20.34 million, $34.23 million and $56.31 million for 2021-2023. Taking into account the successful acquisition of Quintara in the first half of the year, with reference to profit betting, we expect adjusted net profit (excluding equity incentives, acquisition apportionment and fair value fluctuations) to be $30.57 million, $47.23 million and $67.31 million in 2021-2023, an increase of 49.85%, 54.50% and 42.52%, respectively, corresponding to the closing price PE of July 30, 2021, which is 53, 33 and 23 times, respectively. We believe that the company is currently in the period of integration of the integrated platform and will enter the performance release period in 2022, with reference to the average valuation of CXO comparable companies and the scarcity of services in both China and the United States to maintain a "buy" rating.
Risk hint
The volatility of the impact of depreciation of new fixed assets, equity incentives and foreign exchange on apparent performance; the volatility of the profit cycle of new business; the decline of investment and financing of innovative drugs; the uncertainty of the trade environment between China and the United States