Event: In 2023, we achieved revenue of 1,017 billion yuan (+67.51%), net profit of 272 million yuan (+40.07%), net profit of 259 million yuan (+52.48%); a single Q4 achieved revenue of 304 million yuan (+62.66%), net profit to mother of 0.7 billion yuan (+44%), net profit of non-return to mother of 58 million yuan (+57.96%). 24Q1 achieved revenue of 216 million yuan (+34.04%); net profit due to mother of 50 million yuan (+42.06%); net profit after deducting non-return to mother of 49 million yuan (+41.00%).

The performance was excellent, and all sectors continued to grow rapidly: the 2023 and 2024Q1 results continued to grow at a high rate, and all sectors maintained rapid growth. By sector, pharmaceutical research/technological achievement transformation/clinical service/CDMO/equity sharing revenue in 2023 was 3.38/3.92/1.93/0.52 billion yuan respectively, up 54.81%/77.66%/141.25%/152.35%/-48.74% year-on-year. Among them, pharmaceutical research and transformation of technological achievements maintained relatively rapid growth. CDMO gradually entered a period of rapid performance growth as Thermo's production capacity climbed, and the equity sharing business declined slightly. We think it was mainly affected by the continued price reduction of valsartan amlodipine tablets It is expected to return to a growth trajectory in 24 as the variety of equity shares increases.

Gross margin remained high, and financial expenses increased slightly: the overall gross margin for 2023 and 2024Q1 was 65.53%/68.19% (-1.84/+2.5pct), which stabilized at a high level. By sector, the gross margin of pharmaceutical research/technological achievement transformation/clinical service was 64.76%/78.62%/44.02% (+4.26/0.61/-1.33pct), respectively. The decline in clinical trial gross margin was mainly due to the difficulty of some clinical trial projects, and the higher number of trials led to a corresponding increase in costs. In terms of the cost ratio during the period, the net profit margin declined slightly due to a slight increase in financial expenses after the use of raised capital. The sales, management, finance, and R&D expenses in 2023 were 0.95%/12.64%/23.69%/-2.08% (-0.34/-4.06/-3.65/+4.8pct), respectively. Investment in innovative R&D increased, and R&D expenses increased by 45.13% year on year in 2023, but the R&D expense ratio was controlled at a good level.

New orders have maintained a relatively rapid growth rate. There are plenty of orders in hand, and a high increase can be expected in 2024: the company signed new orders of 1,360 billion yuan (tax included) (+35.06%) in 23, and on-hand orders of about 1,586 billion yuan (excluding tax) (+18.90%). Ongoing orders are abundant. As orders are delivered one after another, 24 years of high performance growth can be expected.

Investment proposal: We expect the company to achieve operating income of 13.91/18.75/2,416 billion yuan and net profit to mother of 3.79/5.18/670 billion yuan in 2024-2026. The corresponding PE was 20.72/15.15/11.71 times, respectively, maintaining the “gain” rating for the company.

Risk warning: New orders fall short of expectations; industry competition increases risks; downside macroeconomic risks, etc.