Incident: The company released its 2024 quarterly report. In the first quarter of 2024, the company achieved operating income of 1,660 million yuan, a slight decrease of 8.00% year on year; net profit to mother was 235 million yuan, down 58.65% year on year; net profit after deducting non-return to mother was 305 million yuan, down 20.50% year on year.
Fluctuations in vaccine project base and investment and financing disrupted Q1, and gross margin showed a month-on-month recovery trend. ① The 2023Q1 vaccine project base led to a slight slowdown in clinical trial technology service revenue: 2023Q1's multi-regional clinical trial business, including several vaccine-related trials, was reduced compared to the same period of the previous year; ② Investment and financing fluctuations led to a decrease in the fair value of the company's other non-current financial assets, leading to scale fluctuations due to domestic investment and financing fluctuations in 2024Q1; ③ Beijing, Guangzhou and other places introduced favorable policies related to innovative drugs. It is expected that the policies will gradually strengthen to bring about business recovery: Guangzhou and Beijing have been introduced one after another since the first quarter 2024Q1 There are a number of measures to support the high-quality development of innovative pharmaceuticals. We expect that with the gradual implementation of the policy, the company's related business will resume; ④ The gross margin of 2024Q1 will gradually increase month-on-month: 2024Q1 is about 37.83% (+5.01pp). Subsequently, with the gradual recovery of business, gross margin is expected to return to the historical average.
Operating cash flow has recovered rapidly, and the expense ratio is basically stable. We look forward to a gradual recovery of orders. 2024Q1's net operating cash flow was approximately $144 million (+405.84%). In terms of cost ratio, sales expenses were 46.45 million yuan (+3.43%), and the cost ratio was 2.80%, an increase of 0.31pp over the previous year. Management expenses of 177 million yuan (+3.60%), an expense ratio of 10.67%, an increase of 1.20pp over the previous year, mainly due to a steady increase in the amortization of the company's equity incentive expenses. R&D expenses were 63.91 million yuan (-0.95%), and the cost ratio was 3.85%, an increase of 0.27pp over the previous year.
Profit forecast and investment advice: We expect the company's revenue for 2024-2026 to be 8551, 103.03 and 12.827 billion yuan, up 15.80%, 20.50%, and 24.49% year-on-year; net profit to mother will be 22.99, 27.32, and 3.437 billion yuan, respectively, up 13.52%, 18.86%, and 25.82% year-on-year. The company is a leading clinical CRO in China. It has a prominent competitive advantage and maintains a “buy” rating.
Risk warning events: risk of industry R&D investment falling short of expectations; risk of overseas business integration falling short of expectations; risk of industry competition increasing risk; risk of exchange rate fluctuations.