Event: The company released its 2024 quarterly report. In the first quarter of 2024, the company achieved operating income of 7.982 billion yuan, a year-on-year decrease of 10.95%; net profit to mother of 1.942 billion yuan, a year-on-year decrease of 10.42%; net profit after deducting non-return to mother of 2,034 billion yuan, an increase of 7.30%; and adjusted non-IFRS net profit of 1.913 billion yuan, a year-on-year decrease of 18.32%.
Q1 was greatly affected by fluctuations in COVID-19 orders. After excluding COVID-19 commercialization projects, it is expected to achieve steady revenue growth of 2.7-8.6% throughout the year. In terms of profitability, 2024Q1 gross profit margin 38.13% (year-on-year -1.76pp), non-IFRS gross profit margin 38.70% (-2.30pp), non-IFRS net interest rate 24.54% (+0.15pp), and non-IFRS net interest rate 24.00% (-2.10pp). We expect slight fluctuations in revenue and profit mainly due to a decrease in COVID-19 order confirmations: 2024Q1 is due to a decrease in confirmed COVID-19 orders. We expect revenue from COVID-19 commercialization projects to drop slightly by 1.8% in 2024Q1; ② ① Global investment and financing fluctuations in 2023 brought about a slight slowdown in early testing and biology business growth. However, due to steady orders and continued release of production capacity, we expect the company to achieve steady revenue growth of 2.7-8.6% after excluding COVID-19 commercialization projects in 2024, and the adjusted non-IFRS net interest rate to mother is expected to be at the same level as 26.9% in 2023.
Chemical Business (WuXi Chemistry): The “end-to-end, integrated” CRDMO business model continues to be implemented. Revenue in 2024Q1 was 5.56 billion yuan (-13.5%), excluding COVID-19 commercialization project revenue growth rate of about -0.6%. ① Small Molecule Drug Discovery Service (R): Revenue +3%, laying the foundation for continued steady back-end growth. ② CDMO (process development and production):
“Follow and win” continues to advance, with revenue of 4.0 billion yuan. Excluding COVID-19 commercialization projects, the revenue growth rate was about +1.2%. As of 2024Q1, the R&D pipeline totaled 3,286 projects (+26.9%), including 64 commercialization (+16.4%). In addition, 2024Q1 TIDES's business revenue was 780 million yuan, achieving strong growth of +43.1%. By the end of the first quarter, TIDES's on-hand orders had increased significantly by 110% year-on-year. In terms of production capacity, the volume of the polypeptide solid phase synthesis reactor increased to 32,000 L in January 2024.
Testing business (WuXi Testing): The SMO business continues to grow rapidly, and the security assessment business is growing steadily. 2024Q1 revenue was 1.49 billion yuan (+2.6%), of which ① laboratory analysis and testing services: revenue of 1.05 billion yuan (-0.6%), safety assessment business increased 3.7% year over year; ② clinical CRO and SMO: revenue of 410 million yuan (+11.0%), and the scale continued to expand, with SMO revenue increasing 26.4% year over year.
Biology Business (WuXi Biology): The new molecular types business continues to grow rapidly. 2024Q1's revenue was 550 million yuan (-2.8%), of which revenue related to new molecular types was +12.2%, increasing its share in the biology sector to 29.2%.
Cell and Gene Therapy CTDMO (WuXi ATU): It is expected that the implementation of the process verification (PPQ) project will bring additional volume.
2024Q1 revenue was 280 million yuan (-13.6%), of which there were about 5 Q1 service clinical phase III projects. Of these, 2 projects are in the BLA preparation stage and 2 are commercialized projects, which are expected to gradually contribute to the increase.
Domestic New Drug Research and Development Service Department (WuXi DDSU): It is expected that the business will still be in the iterative upgrade stage in 2024. The 2024Q1 revenue was 80 million yuan (-51.8%). Q1 helped customers complete the IND application process for 6 innovative drug projects and obtain approval documents for 6 clinical trials.
Profit forecast and investment advice: We expect the company's revenue to be 394.04, 436.31 and 49.616 billion yuan in 2024-2026, up -2.32%, 10.72% year on year, and net profit to mother of 98.45, 110.58 and 12.925 billion yuan, up 2.48%, 12.32%, and 16.89% year over year. The company's “integrated, end-to-end” strategy is expected to consolidate competitive barriers, drive the company's long-term continuous growth, and maintain a “buy” rating.
Risk warning events: the risk of changes in industry regulatory policies, the risk of increased competition in the pharmaceutical R&D service industry, the risk of overseas operations and international policy changes, the risk of exchange rate fluctuations