The

2024 performance is basically in line with market expectations

The company announced the 2024 results: revenue of 248 million yuan, a year-on-year increase of +21.16%, a net loss attributable to the parent of 322 million yuan, and a non-net loss of 336 million; Among them, the revenue in 4Q24 was 64 million yuan, -5.2% year-on-year and -9.21% month-on-month, with a net loss attributable to the parent company of 132 million yuan and a non-net loss of 136 million yuan. The performance was basically in line with market expectations, and the pressure on profitability was mainly due to the weak demand for financing from downstream customers that was still lower than expected, and the increase in operating expenses of the company's Lingang base.

Development trend

CDMO: Maintain the leading position in China, and release the production capacity of the Lingang base. CDMO revenue in 2024 will be 135 million yuan, +26.12% year-on-year. The gross profit margin was -114.52%, and the loss was mainly due to the weakening of downstream demand, the price of executed orders was still at a low level, and the first phase of the company's Lingang Industrial Base was fully put into operation, and the operating costs and expenses increased significantly year-on-year. In 2024, the amount of new CDMO orders will exceed 270 million yuan, and the cumulative number of CDMO projects will be 450 by the end of 2024. In 2024, the company will support customers to obtain 10 IND clinical implicit approval approvals, 2 US FDA approvals, and a total of 44 INDs by the end of 2024. In terms of production capacity, the first phase of the company's Lingang industrial base project added 11 carrier production lines + 5,000m2 cell production lines, which will be put into operation in September 2023 and March 2024 respectively, with a cumulative investment of 1.2 billion yuan.

CRO: Continued growth and continued expansion of the customer base. In 2024, CRO revenue will be 85.82 million yuan, +8.02% year-on-year, and gross profit margin will be 59.4%, -4.84ppt year-on-year. The company's CRO customer base continues to expand, serving more than 12,800 R&D laboratory customers by the end of 2024, and at the same time, the company has increased its overseas business construction efforts, focusing on core products such as tool virus vector preparation services and cell line preparation services, to explore the U.S. scientific research service market and enhance brand awareness.

Layout in the field of regenerative medicine. In April 2024, the company invested in the establishment of a wholly-owned subsidiary, Heyuan Hemei, and in September 2024, Heyuan Hemei "Regenerative Medicine Center" was established to lay out the application fields of regenerative medicine and anti-aging. At present, the company has built a comprehensive CRO/CDMO service capability covering cell storage, raw material production to clinical transformation, and is participating in the formulation of the group standard of "Human Dermal Fibroblasts" of Shanghai Pharmaceutical Quality Association, providing high-quality solutions for the field of regenerative medicine and anti-aging, and actively deploying new technologies and processes such as stem cell 3D large-scale culture platform and lentivirus-based CAR-MSC platform process.

Earnings Forecast and Valuation

Considering that downstream demand has not yet recovered significantly and the company's production capacity is still in the ramp-up stage, we have lowered our net profit forecast for 2025 to a loss of RMB285 million (the previous value was a loss of RMB220 million), and introduced a net profit forecast loss of RMB271 million for 2026. Considering the recent upward shift in the valuation pivot of the pharmaceutical sector, we maintain our Outperform rating and TP of $6.40 (based on the DCF valuation method), which represents 12.7% upside from the current share price.

Risks

Capacity utilization is lower than expected, customer demand is lower than expected, competition is intensifying, R&D risks, and technical staff are lost.