Description of the event

The company released its report for the third quarter of 2023, achieving revenue of 698 million yuan, a year-on-year decrease of 46.44%. Net profit of 41 million yuan was realized, a year-on-year decrease of 88.65%. Non-net profit was reduced by 34 million yuan, a year-on-year decrease of 90.68%.

Incident comments

The conventional small molecule CDMO business is growing steadily. In the first three quarters of 2023, the company achieved cumulative revenue of 3,037 billion yuan, a year-on-year decrease of 41.79%, net profit of 452 million yuan, a year-on-year decrease of 71.36%, and net profit of 425 million yuan, a year-on-year decrease of 425 million yuan, a year-on-year decrease of 73.08%. The decline in apparent performance was mainly due to the impact of the large order base for the same period last year. By the end of the third quarter, all major orders received by the company in the early stages had been delivered. Revenue after deducting the impact of large orders in the first half of 2023 increased by about 29% year on year. The trend is expected to continue in the third quarter.

Profit margins are affected by the expansion of personnel and production capacity, and the pharmaceutical business is growing rapidly. The decline in net interest rates in the first three quarters of 2023 was mainly due to:

1) The large order base for the same period last year was high, which led to a significant decline in overall revenue in the first three quarters of this year; 2) additional personnel increased labor costs; and 3) increased operating expenses and depreciation for new production capacity. In the first three quarters, the company's emerging business formulation services developed rapidly, achieving a new order amount of about 144 million yuan, an increase of about 211% over the previous year.

“End-to-end” CDMO service platform capabilities have been strengthened. With the completion and commissioning of the first phase of the company's first pharmaceutical factory project in Chongqing's Liangjiang New Area in the fourth quarter of 2022, the company already has five flexible and modular production lines for oral solid formulations, injections, and high activity, which can provide customers with production services from clinical registration and approval to small-scale commercialization. In the first three quarters of 2023, the company's formulation team provided pharmaceutical CDMO services to 80 customers, with 119 service projects. Looking to the future, as the company's API CDMO capabilities continue to be strengthened and pharmaceutical CDMO capabilities are enhanced, the “end-to-end” service chain will be smoother.

It is estimated that the net profit of the company from 2023-2025 is 721, 7.72 and 1,025 million yuan, corresponding to the PE of the current stock price, which is 22, 20, and 15 times, respectively, to maintain the “buy” rating.

Risk warning

1. The risk that the company's new business development falls short of expectations;

2. The risk that the company's new orders fall short of expectations.