\u3000\u30 Guangdong Tengen Industrial Group Co.Ltd(003003) 47 Hangzhou Tigermed Consulting Co.Ltd(300347) )
Key investment points
Split: the main business is restored, and covid-19 is driven
Performance in 2021: the company achieved revenue of 5.214 billion (YoY 63.32%), net profit attributable to the parent company of 2.874 billion (YoY 64.26%), and net profit attributable to the parent company of 1.232 billion (YoY 73.90%) after deduction. After adjustment, the net profit attributable to the parent company was 1.585 billion (yoy60.6%), and the net cash flow from operating activities was 1.424 billion (yoy42.57%), indicating a high growth quality.
Business splitting: the main business is strong and covid-19 is driven. Revenue from clinical trial related and laboratory services was 2.22 billion (YoY 32.7%); The revenue of clinical trial technical services is 2.994 billion (yoy97.1%), which is expected to be mainly due to the rapid growth of the main business and the significant increase of covid-19 orders. Considering the continuous and rapid growth of the company’s orders and personnel, we expect the main business revenue to maintain a rapid growth trend in 202224.
Profitability: the gross profit margin in 2021 was 43.38% (down 3.86pct year-on-year). We expect it to be mainly due to: ① impact of business structure: the proportion of SMO business and covid-19 project with low gross profit margin increased. Covid-19 related multi regional clinical trial technology transfer fee is higher than that of traditional clinical business (674 million transfer fee and 5.36 PCT decrease in gross profit margin of clinical trial technical service), resulting in a decrease in gross profit margin; The impact of exchange leads to the decline of data statistics and consolidated laboratory service gross profit margin. The deduction of non net interest rate was 23.62% (increased by 1.44pct year-on-year), mainly because the financial expense rate decreased by 6.91pct. Considering the use of raised funds and the changes of business structure, we expect the profitability of the company to decline slightly in 202224, and basically remain stable after deducting the impact of financial expense rate.
Orders: record high, optimistic about the high growth in 20222023 under the leading advantage
In 2021, 9.645 billion new contracts (YoY 74.22%) and 11.405 billion orders on hand (YoY 57.09%) reached a record high. Contract liabilities increased by 189 million month on month in 2021q4, indicating a rapid growth of newly signed orders. The higher absolute value of orders on hand provides support for the high growth of revenue in 20222023. The number of phase I-IV projects implemented by the matching company continues to increase, indicating that the company’s leading position in the field of clinical cro continues to consolidate. We are optimistic about the high growth momentum under the leading advantage. The global service capacity has been further improved, and the orders can be fulfilled continuously. The company has 132 overseas single region clinical trials under implementation (with a year-on-year increase of 37) and 50 MRCT clinical trials under implementation (with a year-on-year increase of 30). The company has established a globally integrated SOP process and globally integrated budget management, made major breakthroughs in internationalization, and looks forward to the continuous realization of overseas markets.
Incentive: bind high-level and core technical personnel to lay the foundation for long-term development
1) A-share employee stock ownership plan: grant no more than 782 directors, supervisors, senior executives and core technical backbones. The transfer price of the first and reserved shares is 73.80 yuan / share, the corresponding number of shares is no more than 3608100 shares, and the financing amount is no more than 266 million yuan;
2) H-share stock appreciation right incentive plan: there are no more than 90 senior executives, core technicians and business personnel of overseas subsidiaries. It is proposed to grant no more than 449900 H-share appreciation rights to incentive objects, accounting for about 0.0516% of the total share capital of the company at the time of announcement of the draft plan. The unlocking conditions of the above two incentive schemes are that the deduction of non YoY in 2022 / 2023 / 2024 is not less than 40% / 25% / 17%. The H-share incentive scheme helps bind the executives of overseas subsidiaries and is expected to contribute to the long-term development of the company’s international business.
Profit forecast and valuation
We expect the company’s EPS to be 3.92, 4.61 and 5.66 yuan / share from 2022 to 2024. The closing price on March 28, 2022 corresponds to 25 times of PE in 2022 (21 times of PE in 2023). At present, the company’s valuation is at a historically low level and the leading barrier continues to be reflected. We are optimistic about the clinical cro market of Chinese innovative drugs and the future growth of Hangzhou Tigermed Consulting Co.Ltd(300347) as a leader, maintaining “buying”.
Risk tips
The risk of deterioration of investment and financing of innovative drugs, the risk of fluctuation of clinical trial policies, the risk of new business integration falling short of expectations, and the risk of performance falling short of expectations.
