\u3000\u3 Shengda Resources Co.Ltd(000603) 127 Joinn Laboratories (China) Co.Ltd(603127) )
Key investment points
Performance overview: in line with expectations, high growth continued
The company’s revenue in 2021 was 1.517 billion yuan (YoY 40.97%), deducting 530 million yuan (YoY 81.63%) of non attributable net profit (including changes in fair value and financial management income, excluding Baike investment income, exchange gain and loss and interest), which was basically in line with the express report. Among them, the income of preclinical segment is 1.482 billion and yoy is 4.0 billion 8%, which is still the absolute main body of the company’s income.
Profitability: the gross profit margin is affected or weakened by the increase in cost and price, and the net profit margin is basically stable in 2022. The gross profit margin of the company in 2021 is 48.7%, down 2.7pct year-on-year, which is mainly suppressed by the increase in the price of primate models. The impact of changes in the fair value of biological assets at the net profit side is about 86.95 million (about 5.73 PCT to the net interest rate), and the interest income is 83.72 million (about 5.52 PCT to the net interest rate), which is mainly driven by the funds raised by Hong Kong stocks, with the net interest rate as high as 36.69%, a record high.
We found that the price rise of primate models has a significant impact on the company’s gross profit margin and net profit margin. Based on the price trend of 2022q1 animal model market, China’s preclinical boom and the supply-demand relationship of animal model market under the current epidemic prevention policy, we believe that the price rise may continue. From the perspective of gross profit margin, with the increase of cost pressure or change the pricing method of simple animal model cost transfer, the company smoothes its impact on gross profit margin through price increase. From the perspective of net interest rate, we judge that the contribution of changes in the fair value of biological assets to the profit side may continue from 2022 to 2024, but with the rapid growth of the company’s revenue volume, the increase in net interest rate may decrease. We roughly predict that the changes in the fair value of biological assets from 2022 to 2024 may be 100 million, 80 million and 65 million. In addition, the interest income from Hong Kong stock raising also contributes significantly to the net interest rate. Considering the capital expenditure plan for 20222024, we judge that the contribution to profits may reach 120 million, 100 million and 80 million respectively. Considering the impact of these two factors, as well as the competitive environment of the company’s main business and the impact of capacity expansion on the cost side and expense side, we expect that the company’s net profit margin from 2022 to 2024 may be slightly lower than that in 2021, but it will remain at a historical high.
Growth capacity: capacity + orders support high growth in the future
In 2021, the number of new orders signed by the company exceeded 2.8 billion, and the number of orders on hand at the end of the year was about 2.9 billion (YoY 63%), accelerating the growth. Book to bill is 1.91, which is higher than that in 2020, which not only proves the high prosperity of China’s preclinical market, but also shows the company’s continuously strengthened market leading position.
At the same time, the value of the company’s projects under construction in 2021 reached the highest since the listing, about 127 million. From 2022 to 2023, the company will enter the period of accelerated production capacity. The company’s new capacity in 2022 includes: the 7500 square meter feeding facility in Zhaoyan, Suzhou has been put into use by the end of 2021, and another 20000 per capita capacity will be put into use in 2022h2. The 6000 square meter test facility expanded by overseas subsidiary biomere has been put into operation in early 2022, and the new technology platform Wuxi drug release evaluation center (3000 square meters) will also be put into operation in 2022h2. In addition, the capacity under construction includes: Guangzhou, Chongqing safety assessment base and experimental animal models in Wuzhou, Guangxi (construction will be completed by the end of 2022).
We believe that under the high preclinical boom of the company from 2022 to 2024, Joinn Laboratories (China) Co.Ltd(603127) the high on hand orders + high production capacity launch will effectively alleviate the production capacity pressure, improve the market share in China, help to open the overseas market and supplement the integration chain.
The high growth of overseas orders deserves attention in 2022
With the gradual decline of the epidemic, the company’s overseas market is expected to accelerate in 2022. We found that the overseas subsidiary biomere undertook orders of about 280 million yuan in 2021, accounting for 75% of yoy. Zhaoyan China undertakes about 160 million overseas orders, 100% of yoy. In view of the order execution cycle and capacity support, we believe that this has laid the foundation for the company’s high growth of overseas customers in 2022, or opened up new space for the company. At the same time, the company passed the GLP examination of Japan PMDA in December 2021, which is the first GLP examination of Chinese preclinical cro in Japan. At present, the company has obtained GLP certification from the United States, Europe and Japan, which has also laid a foundation for the company’s overseas expansion.
Profit forecast and valuation
Considering the rhythm of the company’s production capacity, the execution cycle of orders in hand, the price trend of experimental animals and short-term capital expenditure, we predict that the company will maintain a high growth of 40% revenue CAGR and 32% profit CAGR from 2022 to 2024, and continue to be optimistic about the high prosperity of local clinical and preclinical sectors. We estimate that the company’s EPS from 2021 to 2023 will be 2.04, 2.60 and 3.39 yuan respectively, corresponding to 57 times of PE in 2022 according to the closing price on March 30, 2022. Maintain the “buy” rating with reference to the valuation of comparable companies and industry status.
Risk tips
The volatility risk of short-term order execution and the risk of improper control of accounts receivable caused by the increase of large contracts.
