\u3000\u3 Shengda Resources Co.Ltd(000603) 127 Joinn Laboratories (China) Co.Ltd(603127) )
Non clinical safety assessment cro leader, with rapid growth in performance
The company has been engaged in non clinical safety assessment (hereinafter referred to as safety assessment) business for 27 years, with complete qualification certification and leading production capacity. It is a leading non clinical safety assessment enterprise in China. Benefiting from the increasing R & D of innovative drugs in China and the transfer trend of overseas orders to China, the company has developed rapidly in recent years. From 2015 to 2021, the CAGR of revenue and net profit attributable to parent company were 39.41% and 49.86% respectively. According to the performance express, in 2021, the newly signed orders of the company exceeded 2.8 billion yuan and the orders on hand exceeded 2.9 billion yuan, with high certainty of short-term performance growth.
The safety assessment industry has broad prospects, and the scarcity of GLP qualification leads to short supply
Non clinical safety evaluation refers to the evaluation and prediction of the safety of candidate drugs through various toxicological tests. Frost & Sullivan predicts that benefiting from the upsurge of innovative drug research and development, the global safety assessment cro market will grow from US $4.8 billion in 2019 to US $8.7 billion in 2024, with a CAGR of 11.64%; Chinese enterprises undertake global orders by virtue of cost advantages, with a faster growth rate. The market scale will increase from US $400 million in 2019 to US $2 billion in 2024, with a CAGR of 34.40%. The safety assessment business needs to be carried out in laboratories that meet GLP standards. GLP qualification is difficult to obtain. The construction cycle of new production capacity is long and the capital investment is large. The outsourcing leader with the most production capacity is expected to enjoy the dividend of rapid growth of the industry.
With safety assessment business as the core, industrial chain extension and internationalization strategy open the performance ceiling
The company has the largest GLP production capacity in China and continues to promote the construction of new production capacity. The capacity utilization rate of GLP laboratories in Beijing and Suzhou continues to improve. The projects under construction in Wuzhou, Chongqing and Guangzhou are expected to be put into operation successively from 2023, laying a foundation for the medium and long-term development of safety assessment business. The company accelerates the layout of the “preclinical + clinical” one-stop cro service platform, and relies on the safety assessment business to guide customers and projects, which is expected to achieve diversified development and open the performance ceiling. In 2019, the company acquired biomere and quickly entered the US market. Offshore outsourcing orders increased rapidly, with obvious diversion effect. The international layout has achieved results. The target market space of safety assessment business has expanded from about US $400 million in China to about US $5 billion in the world.
Earnings forecast, valuation and rating
We estimate that the company’s revenue from 2021 to 2023 will be RMB 1.517/2.096/2.803 billion, CAGR 37.60%, net profit attributable to parent company 557/7.64/972 million, CAGR 45.57%, and corresponding PE 73 / 53 / 42x respectively. With high barriers to safety assessment business and strong outsourcing demand, the company, as a subdivision leader, is expected to enjoy the valuation premium brought by the rapid growth of the industry. Give the company 60 times PE in 2022, corresponding to the target price of 120.3 yuan, cover it for the first time, and give a “overweight” rating.
Risk tips
Tight supply of laboratory animals and risk of price rise; The risk of stricter regulatory policies in the pharmaceutical industry; Risk of increased competition in cro industry; Social responsibility risk; New business expansion is less than expected risk; Overseas layout is less than expected risk.
