Tigermed reported 1Q24 revenue of RMB1,660mn, down 8.0% YoY, and attributable recurring net income of RMB303mn, down 20.5% YoY, which was mainly due to the substantially reduced gains on fair value changes and investment changes (RMB8mn in 1Q24 vs RMB198mn in 1Q23). 1Q24 revenue / attributable recurring net income accounted for 19.8%/ 18.0%, respectively, of our 2024 full-year estimates, which were largely in line with its pre-COVID average level. 1Q24 revenue would be flat compared with 1Q23 if excluding COVID vaccine related revenue. Gross profit margin (GPM) in 1Q24 was 37.8%, significantly improved by 5.0ppt QoQ, driven by ongoing cost management measures as well as the MoM GPM improvements of its lab services. According to mgt., GPM would be 38.5% in 1Q24, flat QoQ, if excluding COVID vaccine related revenue. Mgt. targets to grow the attributable recurring net income by 25-30% QoQ in 2Q24, considering the accelerated revenue conversion from contracts and the cost control measures.
Demand experiencing meaningful recovery in 1Q24. According to mgt., 1Q24 contract signings rebounded to double-digit growth, with Mar showing an acceleration compared to Jan and Feb. The upward trend has persisted into April. Specifically, orders from MNC and domestic pharma clients contributed to a notably larger proportion in total orders while orders from the U.S. and Australia remain robust. Encouragingly, there are signs of recovery in orders from domestic biotech firms, thanks to the recovery of biotech funding. Tigermed's BD team will continue to focus on exploring opportunities from MNC and domestic pharma clients.
Strengthening cost control. Tigermed plans to continue its cost control on SG&A expenses and GPM optimization. Mgt. indicated that, with its asset- light business model, Tigermed possesses ample leverage on cost controls, which, for instance, include increasing the utilization of decentralized clinical trial (DCT) platforms (applied in ~20% projects as compared with ~17% by end-2023), establishing integrated teams within specific therapeutic areas, and reallocating personnel across departments as needed.
Globalization remaining a high priority. In the global market, Tigermed strategically serves Chinese companies targeting global market, as well as overseas local clients with limited access to international CRO services. The company has recruited a local BD team in the U.S and is currently engaged in multiple projects with U.S. local clients. Tigermed intends to further expand team sizes in the U.S. and India to enhance its global operation.
Maintain BUY. We trim our TP from RMB68.57 to RMB66.82, based on a 10-year DCF model (WACC: 10.95%, terminal growth: 2.0%), to factor in the slower earnings projection and uncertainties in demand recovery pace. We forecast Tigermed's revenue to grow 11.3%/ 16.2%/ 20.6% YoY and attributable recurring net income to grow 11.9%/ 20.8%/ 25.6% YoY in 2024E/ 25E/ 26E, respectively.