Heyuan Biology (688238)
Key investment points: 1) gene therapy has entered the fast lane and is highly dependent on cdmo services: gene therapy is supported by both capital and policy, and its development is accelerated, but it is difficult to commercialize production and has strong demand for outsourcing production; 2) The company is deeply engaged in gene therapy outsourcing service platform and is the leader of gene therapy cro / cdmo in China: in 2020, the company turned losses into profits, cdmo business contributed 102 million yuan, with a compound annual growth of 180.7% from 2018 to 2020, and is expected to continue to grow at a high rate under the track dividend; 3) The company grasps the core competitiveness and builds long-term industrial barriers: there is a strong demand for gene therapy cdmo outsourcing. The company focuses on the construction of cutting-edge technology platform and R & D investment. The company has rich project experience and grasps the core competitiveness.
The development of gene therapy has entered the fast lane, cdmo service dependence is high, and the outsourcing industry is rising. The gene therapy market has entered the fast development Lane: as the outlet of the next generation medical industry, gene therapy is favored by the capital market. The total financing of the industry has increased significantly from about US $7.5 billion in 2017 to US $19.9 billion in 2020; Gene therapy is highly dependent on cro / cdmo outsourcing services: gene therapy products are difficult to develop and produce, long cycle and high cost, and most participants are start-ups, so they rely more on professional R & D and production outsourcing services; China’s gene therapy cdmo industry has entered a high growth stage. From 2018 to 2020, China’s cdmo market scale increased from 870 million yuan to 1.33 billion yuan, with a compound annual growth rate of 24.1%.
Gongshen ploughs into the field of gene therapy outsourcing services and is the leader of gene therapy cro / cdmo in China. The company is a pioneer in the gene therapy outsourcing industry, creating a cutting-edge gene therapy service platform to enhance customer stickiness; The company’s performance turned from loss to profit in 2020: in 2020, benefiting from the continuous delivery of gene therapy cdmo project and the promotion of new orders, the company turned from loss to profit, with a net profit of 91.285 million yuan and a net profit of 26.668 million yuan after deducting non attributable parent; Cdmo business has become the main force of the company and is expected to maintain high growth: in 2020, the gross profit margin of the company’s cdmo business will be 56%, the compound annual growth rate from 2018 to 2020 will be 61%, and 2021h1 will contribute 65.5% of the company’s gross profit. With the gene therapy industry entering a high growth track, the company’s cdmo business is expected to maintain high growth.
Grasp the core competitiveness of the industry and build long-term industrial barriers. 1) Building a comprehensive and high-tech platform is the only way to engage in gene therapy cdmo business: the company has formed two core technology clusters: gene therapy vector development technology and gene therapy vector production process and quality control technology. Its technical level is equivalent to that of its Chinese counterparts, and many technologies are at the international leading level; 2) The large-scale and highly flexible GMP production platform has built a solid system barrier and capacity guarantee for the company: the company is building a precision medical industry base of nearly 80000 square meters in Shanghai Lingang Holdings Co.Ltd(600848) construction, designing 33 GMP production lines, and the maximum reactor scale can reach 2000L; 3) Gene therapy cdmo has high technical barriers and strong customer stickiness: the company has full-cycle service capability and GMP production experience in the field of gene therapy cro / cdmo, with strong customer stickiness.
Profit forecast and investment suggestions: we expect the net profit attributable to the parent company from 2022 to 2024 to be RMB 0.9/1.4/230 billion respectively. Considering the first mover advantage of the company in the field of gene therapy outsourcing, the company will fully benefit from the first mover advantage, advanced technology group and high viscosity customer group, and give a “buy” rating for the first time.
Risk tip: the development of gene therapy industry is not as expected, production qualification risk, port industrial base related risk, and technology path uncertainty risk
