Description of the event

The company released the 2023 annual results report, achieving operating income of 1,403 billion yuan, a year-on-year decrease of 15.45%; realized net profit to mother of 308.773 million yuan, a year-on-year decrease of 109.13%; and realized deduction of non-net profit of 55,1365 million yuan, a year-on-year decrease of 117.95%.

Incident comments

Due to the impact of the market environment, operations fell short of expectations. Affected by the slowdown in investment and financing in the pharmaceutical industry, industry competition intensified. Due to falling order prices and delays in execution of some orders, the company's revenue fell short of expectations. The company's R&D laboratory operating expenses and fixed asset depreciation, as well as labor costs and related expenses, increased during the reporting period. At the same time, the price of experimental animals in inventory fell at the end of the reporting period. Based on the principle of prudence, the company prepared for inventory price reductions, which had a negative impact on operating profits.

Steady increases energy for medium- to long-term development. In order to keep up with the wave of new drug innovation, build a more comprehensive and efficient drug development system, and effectively improve service capabilities to undertake drug discovery projects, the company completed refinancing the issuance of A-shares to 15 specific targets in 2023, raising a net amount of 990 million yuan. As of 2023Q3, the main construction of the “Laboratory Expansion Project for Drug Discovery and Pharmaceutical Research and Application Platforms” has been completed, and the park pipeline is under construction; the “Medi Northwest Shanghai Biomedical R&D and Innovation Industrial Base Project” has officially started. This fund-raising and construction project will significantly increase the company's drug discovery service capabilities, further expand the scale of existing business revenue, enhance market competitiveness and industry influence, and help the company move through the industry cycle and accumulate energy for medium- to long-term development.

Effectively “improve quality, increase efficiency and increase return”, and repurchased the company's shares for the first time. In order to implement the “investor-based” development concept of listed companies, in order to protect the interests of all shareholders of the company, and based on confidence and value recognition of the company's future development prospects, as of January 31, 2024, the company had repurchased 488,426 shares through centralized bidding transactions, accounting for 0.3627% of the company's total share capital.

We expect the company to achieve net profit of 149 million yuan and 206 million yuan in 2024-2025. The PE corresponding to the current stock price is 39 times and 28 times, giving it a “buy” rating.

Risk warning

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

2. The implementation of the company's new production capacity fell short of expectations.