Joinn reported 1Q24 revenue of RMB325mn, down 12.1% YoY, and booked attributable net loss of RMB272mn, a significant downturn from an attributable net profit of RMB188mn in 1Q23. The 1Q24 revenue accounted for 13.4% of our full-year estimate, in line with its historical average. First quarter is typically a low season for Joinn. The revenue decline was due to persistently soft R&D activities in China's pharmaceutical industry, which has led to increased competition and price erosion. The bottom line was further impacted by the RMB284mn fair value losses from biological assets, a non-operational, non- cash charge. The laboratory services, which represent the core business of Joinn, incurred a net loss of RMB210mn.

Margin under pressure, while demand showed early signs of stabilization. Gross profit margin in 1Q24 shrank by 18.9ppt YoY and 7.5ppt QoQ to 32.8%, mainly due to price erosion. Considering the uncertainties of the recovery of R&D in the domestic pharmaceutical market and the price erosion of newly signed orders, the mgt. forecasts the 2024E revenue to remain largely flattish, with continued pressure on profitability. Joinn's new orders signed in 1Q24 totaled ~RMB400mn, representing a decline of ~30% YoY. However, mgt. indicated a notable increase in RFPs (request-for-proposals) in the quarter while the number of new project signed grew by ~ 20% YoY. As of 1Q24, the Company's backlog stood at RMB3.38bn, up 2.4% compared with end-2023. Given Joinn has removed projects with low execution certainty from its backlog, the current backlog provides better predictability of future performance, in our view. Notably, the overseas market has exhibited a stronger recovery momentum than the domestic market, with the number of new projects singed in 1Q24 increasing by 30% both YoY and QoQ. Joinn plans to expand its laboratory capacity in the US. The mgt. plans to double the capacity of Biomere, significantly enhancing its service capabilities in US local market.

Invest in an industrial fund to consolidate resources. In Feb 2024, Joinn announced its plan to invest RMB300mn in an industrial investment fund with specialized investment institutes, marking Joinn's first attempt of this kind. Joinn aims to leverage the investment fund to engage with early-stage healthcare startups, which may bring potential orders in the future. Meanwhile, mgt. indicated that such investment will allow Joinn to build a broad network with early-stage companies with keeping risks reasonably controlled.

Maintain BUY. We revised our TP to HK$10.36 from HK$14.41, based on a 10-year DCF valuation with WACC of 12.9% and terminal growth of 2.0%, reflecting the lower earnings projection. We forecast Joinn's revenue to grow -2.0%/ +13.2%/ +18.2% YoY and adjusted net income to grow -28.4%/ +24.3%/ +47.4% YoY in 2024E/ 25E/ 26E, respectively.