Core views

2024Q1-3 achieved revenue of 4.14 billion yuan, a year-on-year decrease of 35%. Excluding large orders, the year-on-year increase increased 4.5%. The profit side declined even more due to pressure from domestic emerging business sectors and overseas acquisition and operation bases. The company's small business grew steadily, and both achieved relatively rapid year-on-year growth, excluding large orders in Q3. Emerging businesses are under pressure in the short term, but judging from on-hand orders, Q4 is expected to resume growth. In the context of a high base, the company's revenue and profit are expected to be under pressure in the short term, but considering the company's advantages in technology, responsiveness, and customers, the general business is expected to maintain a certain growth; emerging sectors are greatly affected by the domestic environment, but the company continues to invest in R&D, continuously build its own capability platform and expand service capabilities, and we are optimistic about the company's development prospects.

occurrences

The company released its 2024 three-quarter report

The company released its 2024 three-quarter report. 2024Q1-3 achieved revenue of 4.14 billion yuan, a year-on-year decrease of 35.1%, excluding the impact of large orders, and a 4.5% year-on-year increase. Net profit to mother was 0.71 billion yuan, down 67.9% year on year; net profit not attributable to mother was 0.663 billion yuan, down 67.4% year on year; single Q3 company achieved revenue of 1.44 billion yuan, down 18.1% year on year; net profit to mother was 0.211 billion yuan, down 60.0% year on year.

Brief review

Performance is in line with expectations, and new orders have maintained a good trend

The company achieved revenue of 4.14 billion yuan in 2024Q1-3, a year-on-year decrease of 35.1%. Excluding the impact of large orders, the year-on-year increase was 4.5%. Net profit attributable to mother was 0.71 billion yuan, down 67.9% year on year, and net profit not attributable to mother was 0.663 billion yuan, down 67.4% year on year. On the one hand, profit declined a lot due to the decline in the company's profit margin after the end of large orders, and on the other hand, operating costs increased after the acquisition of the UK base. In the revenue structure, revenue from large multinational pharmaceutical companies was 2.013 billion yuan. Excluding large orders, the year-on-year increase was 11.1%, and revenue from small and medium-sized pharmaceutical companies was 2.127 billion yuan, a year-on-year decrease of 0.1%. Q3 achieved revenue of 1.44 billion yuan, a year-on-year decrease of 18.1%; net profit to mother was 0.211 billion yuan, a year-on-year decrease of 60.0%. As of August 28, on-hand orders reached $0.97 billion, and new orders in Q3 continued to maintain a good growth trend.

The gross margin of small molecule CDMO continues to rise, and the emerging business is expected to resume growth. Small molecule CDMO's revenue increased 7.7% year over year after excluding the impact of large orders. The single Q3 small molecule business achieved revenue of 1.192 billion yuan. Excluding large orders, the year-on-year increase of 18.9% year-on-year and 22.5% month-on-month increase. The gross profit margin of the small molecule business in the first three quarters was 48.9%, up 1.2 percentage points year-on-year after excluding large orders. The company has basically absorbed the impact of rapid production expansion during large orders through a series of measures to reduce production capacity utilization and reduce costs and increase efficiency.

Emerging businesses achieved revenue of 0.745 billion yuan in the first three quarters of 24, down 13.3% year on year. Mainly due to the continued market slump under the influence of the domestic macro environment, some sectors were still climbing production capacity. The gross profit margin of the emerging business sector was 20.0%, down 13 percentage points year on year, and the revenue and profit of the sector was under pressure.

In emerging businesses, inquiries for drugs such as peptides, ADC, and small nucleic acids continued to be active. Among them, in-hand orders for the peptide business tripled over the same period last year. The company is actively accelerating peptide business expansion and production capacity building. Currently, it has obtained mid- to late-stage peptide clinical projects from several multinational pharmaceutical companies. By the end of the third quarter, the solid-phase peptide synthesis production capacity had exceeded 20,000 L.

24-year outlook: The company still delivered large orders in the first three quarters of 23. It is expected that the high base will still have a certain impact in '24, but at the same time, the increase in customer and industry recognition brought about by continuous high-quality commercial delivery will also help improve the company's competitiveness and help the company get more orders. Revenue from excluding large orders for small molecules increased 7.7% year on year in the first three quarters of the year. In the third quarter of a single quarter, excluding lobby orders increased 18.9% year on year and 22.5% month on month. At the same time, gross margin continued to improve, and profitability continued to increase. The various segments of the emerging business have a comprehensive layout, but business revenue mainly comes from domestic sources. The business growth rate has slowed in the short term due to the domestic investment and financing environment, but as the sector's capacity utilization rate increases, the overseas share of delivered projects has begun to increase, and the company expects the Q4 sector to resume growth again.

The cost rate increased significantly during the period, and the profit margin continued to be under pressure throughout the year: 24Q1-3's sales expenses rate, management expense ratio, and R&D expenses rate were 4.04%, 12.92%, and 11.69%, respectively, increasing 1.86pp, 4.12pp, and 3.65pp over the previous year. The increase in cost rates was mainly due to pressure on the revenue side after the end of large orders in the first three quarters of 24. The absolute value of expenses increased less during the period, but the cost ratio changed significantly. 24Q1-3's gross margin was 43.6%, down 10.53 percentage points year on year, and 24Q1-3 net profit fell to 16.9%, down 17.6 percentage points year on year. The decline in profit margin was mainly affected by the end of large high-margin orders and the continued downturn in the domestic market. At the same time, overseas base acquisitions are also expected to have a certain impact on profits in 24 and 25.

Profit forecast and investment rating: Considering the high popularity of the small-molecule CDMO industry and the company's technical, responsiveness and customer advantages, as well as the company's continuous development of its own competency platform and expansion of service capabilities, we expect the company's revenue for 2024-2026 to be 5.92 billion yuan, 7.45 billion yuan, and 9.29 billion yuan, respectively, with year-on-year growth rates of -24%, 26%, and 25%, respectively; net profit to mother is 1.03 billion yuan, 1.31 billion yuan, and At 1.79 billion yuan, the year-on-year growth rates were -55%, 27%, and 37%, respectively. The PE corresponding to the current stock price was 31, 24, and 18 times, maintaining a “buy” rating.

Risk warning: Follow-up order growth and commercial business growth fall short of expectations: the company's customers are innovative pharmaceutical companies and multinational pharmaceutical companies, and order growth depends on customer innovation and project development progress, and there is uncertainty; business development falls short of expectations: the company actively expands emerging businesses, continues to invest and build capacity, and there is uncertainty about the expansion progress and revenue development of new businesses; the risk of loss of core technical personnel: The pharmaceutical outsourcing service industry is an industry intensive with high-quality technical personnel. By establishing various talent incentive mechanisms, the company stabilizes its own large-scale technical personnel team. Staff attrition. If large-scale losses occur, they will have a negative impact on their normal operations. Production capacity expansion and utilization falls short of expectations: The company's production capacity in the peptide and biomacromolecule sector is still expanding, and there may be situations where the expansion progress or capacity utilization rate falls short of expectations.