GuosenCXO interim report summary: Integrated leader growth steady, focus on continuous recovery of overseas demand.

According to Zhixun Financial APP, Guosen released a research report stating that looking ahead, they recommend paying attention to two main investment opportunities: 1) After the previous correction, current valuations have already reflected concerns about future geopolitical uncertainties. Leading companies are still stable in terms of revenue and new contracts. Focus on CXO leaders with good competitive landscape and efficiency and cost advantages, such as WuXi AppTec (603259.SH), Wuxi BIO (02269), Pharmaron Beijing (300759.SZ), Asymchem Laboratories (002821.SZ) etc.; 2) The rapid development of new molecular businesses such as ADC, peptides, oligonucleotides, and CGT is expected to further open up growth opportunities in the CXO sector. They suggest focusing on investment opportunities in related industry chains, such as Wuxi XDC (02268), Jiangsu Sinopep-Allsino Biopharmaceutical (688076.SH) etc. Guosen's main points are as follows: In the first half of 2024, the revenue and profit of the CXO sector are under pressure. In the first half of 2024, the revenue of the CXO sector (25 sample companies) was 47.5 billion yuan (-9.0%), with a net profit attributable to mother of 7.8 billion yuan (-34.2%), and a non-net profit attributable to mother of 7.2 billion yuan (-30.5%). Compared to the high-speed growth in previous years, since 2023, in the context of the global biomedical investment and financing cooling down, the revenue growth of the CXO sector has slowed significantly, combined with intensified competition in some areas and the impact of the impairment of biological assets, resulting in pressure on profitability. With the gradual recovery of overseas investment and financing on a quarterly basis and the start of the Fed's interest rate cuts, the revenue and profits of some companies in the CXO sector are expected to show a quarterly improvement trend, with companies with a larger proportion of overseas business expected to show more significant improvement. CDMO: Excluding large orders related to COVID-19, the sector's revenue slightly increased while leading companies' revenue remained stable. Excluding WuXi AppTec, Porton Pharma Solutions, and Asymchem Laboratories, three companies with a higher base of large COVID-19 orders, the A-share CDMO sector's revenue in the first half of 2024/Q1/Q2 increased by +3.1%/-8.1%/-9.4%. After excluding the impact of large orders related to COVID-19, the revenue growth of WuXi AppTec, Wuxi BIO, and Asymchem Laboratories in the first half of 2024 were approximately -1%, +8%, and +1% respectively, with the revenue of leading CDMO companies remaining stable. Pre-clinical CRO: Generic drug CRO performance and orders continue to grow steadily. In the first half of 2024, the revenue of the pre-clinical CRO sector (9 sample companies) was 9.2 billion yuan (-3.6%), with a net profit attributable to mother of 1.1 billion yuan (-12.8%), and a non-net profit attributable to mother of 0.4 billion yuan (-65.9%). Quarterly revenue in Q1 and Q2 of 2024 was 4.3/4.9 billion yuan (-4.2%/-3.1%), with a net profit attributable to mother of 0.1/1.1 billion yuan (-92.0%/+79.3%), and a non-net profit attributable to mother of -0.2/0.4 billion yuan (-102.5%/-20.0%). 1) The profit end of pre-clinical CRO companies with a focus on innovative drug businesses is under pressure, such as Joinn Laboratories, Shanghai Medicilon Inc., with a year-on-year decrease in new signed orders. Joinn Laboratories is also facing losses caused by the impairment of biological assets, while the integrated leader Pharmaron Beijing can better absorb this impact. The future focus should be on the pace of investment and financing recovery and the improvement in company orders. 2) Generic drug CRO performance and orders continue to grow steadily, with little impact from investment and financing. Beijing Sun-Novo Pharmaceutical Research, Hangzhou Bio-Sincerity Pharma-Tech's performance and new signed orders in the first half of 2024 showed relatively stable growth. Clinical CRO: Order prices are under pressure, with both revenue and profits of the clinical CRO sector declining in the first half of 2024. In the first half of 2024, the revenue of the clinical CRO sector (4 sample companies) was 4.5 billion yuan (-3.9%), with a net profit attributable to mother of 0.6 billion yuan (-59.0%), and a non-net profit attributable to mother of 0.8 billion yuan (-17.6%). Quarterly revenue in Q1 and Q2 of 2024 was 2.2/2.3 billion yuan (-1.6%/-5.9%), with a net profit attributable to mother of 0.3/0.3 billion yuan (-53.1%/-63.1%), and a non-net profit attributable to mother of 0.4/0.4 billion yuan (-17.1%/-18.0%). Due to intensified competition, order prices are under pressure. Investment recommendations: Looking ahead, they recommend paying attention to two main investment opportunities: 1) After the previous correction, current valuations have already reflected concerns about future geopolitical uncertainties. Leading companies are still stable in terms of revenue and new contracts. Focus on CXO leaders with a good competitive landscape, efficiency, and cost advantage, such as WuXi AppTec, Wuxi BIO, Pharmaron Beijing, Asymchem Laboratories etc.; 2) The rapid development of new molecular businesses such as ADC, peptides, oligonucleotides, and CGT is expected to further open up growth opportunities in the CXO sector. They suggest focusing on investment opportunities in related industry chains, such as Wuxi XDC, Jiangsu Sinopep-Allsino Biopharmaceutical etc. Risk warning: Orders acquisition and execution are below expectations; intensified competition risk; biological asset impairment risk; drug research and development failure risk; pharmaceutical regulatory policy risk; geopolitical risk.