The turning point of the CXO industry has arrived, and Hangzhou Tigermed Consulting (300347.SZ, 03347) is expected to continue its performance recovery.

After experiencing a 4-year capital winter, the innovative pharmaceutical sector of the Hong Kong stock market has recently become a global focus with strong momentum. Data shows that the Wind Hong Kong Biotechnology III (887177.WI) index has increased by over 60% in the past two months, with many individual stocks doubling in value. Looking back at the previous pharmaceutical bull market, CXO, as a shovel stock, has always been sought after by many funds. However, it is noteworthy that the recent surge in the pharmaceutical index is mainly driven by innovative pharmaceutical stocks, while CXO's performance as a shovel stock lags far behind innovative pharmaceutical companies. So, is it worth allocating CXO as a former favorite? Fundamentals, capital, and news collectively drive the turning point for CXO. Looking at the performance, the CXO enterprise performance has shown a turning point in Q1 of 2025. Specifically, in 2024, the operating income of the R&D outsourcing sector of Shenwan decreased by 4.9%, and the net profit attributable to shareholders decreased by 25.4% year-on-year. The decline in revenue and profit in 2024 is mainly due to the gradual settlement of large orders related to the new crown virus and a decrease in demand for R&D due to the decline in global pharmaceutical investment. In Q1 of 2025, the performance of the Shenwan medical R&D outsourcing sector significantly improved, with a 12.2% increase in revenue and a 75.6% increase in net profit attributable to shareholders, with both peptide CDMO and ADC-related CDMO companies continuing to grow. In terms of capacity, the growth of construction projects has slowed down, which helps in capacity digestion. According to Huaxun Securities statistics, the CXO enterprises' construction projects decreased by 7.7% year-on-year in 2024, the first time in recent years, and the total construction volume in Q1 of 2025 increased by 7.4% compared to 2024. The continued growth in orders and an optimistic outlook on capacity expansion can be seen in the increasing business and capacity layout for ADC, peptides, and oligonucleotide new directions by many companies. This is expected to gradually become a new growth driver. Orders from 2024 show that Asymchem Laboratories' total new signed orders increased by about 20% year-on-year, Pharmaron Beijing's new signed order amount in 2024 increased by over 20% year-on-year, Hangzhou Tigermed Consulting's outstanding orders increased by 12.1% year-on-year. WuXi AppTec's outstanding orders increased by as much as 47%. Despite the relatively low investment and financing background, local leading CXO companies have shown strong continuous order acquisition capabilities. Looking at the 2025 guidance: WuXi AppTec guided for a 10%-15% year-on-year increase in operating income, Asymchem Laboratories for a double-digit percentage increase in revenue, and Pharmaron Beijing for a 10%-15% increase in revenue, with many CXO companies expected to perform well in 2025. With the continuous and steady growth of orders, turnover, profitability, etc., are all expected to see improving trends. In terms of institutional holdings, the CXO holdings of medical funds decreased from a peak of 60.8% in 2021 Q3 to 14.4% in 2024 Q1-2024 Q2, and then gradually increased to 23.2% in 2025 Q1. The top ten holdings of CXO in medical funds decreased from a peak of 34.5% in 2021 Q3 to 7.1% in 2024 Q2, gradually increasing to 12.2% in 2025 Q1. The increase in CXO holdings is partly due to the market's relatively bottomed-out perception of large orders and disruptions from investment and financing, as well as expectations for future growth in new businesses such as peptides, oligonucleotides, and ADC CDMO. Looking at historical levels of holdings: currently, the CXO holdings of medical funds are still at historically low levels. From a financial perspective, expectations of a Fed rate cut are increasingly strong. Data shows that in May, the U.S. consumer price index (CPI) rose by 2.4% year-on-year, higher than the previous value but lower than expected; excluding the volatile prices of food and energy, core CPI rose by 2.8% year-on-year in May, with a monthly increase of 0.1%, marking the fourth consecutive month of increases below expectations. After the data was released, market expectations for a Fed rate cut increased, with traders generally expecting one rate cut by the Fed before September and a second one by the end of the year. On the news front, the tariff negotiations received a major boost. On the morning of June 11th, China and the U.S. began negotiations on a new round of tariff issues and successfully reached a framework agreement, covering several key areas, which will have far-reaching implications for both countries and the global economic landscape. Due to the previous escalation of the China-U.S. tariff policies, the export industry chain experienced a significant retreat, especially in the pharmaceutical sub-sector with relatively large exposure to the U.S. market, such as the CXO sector and the medical equipment sector. As the suppression of market by the reciprocal tariffs between China and the U.S. is objectively present, these sub-sectors are expected to see valuation corrections as the tariff policies ease marginally. In summary, after years of "baptism", whether from a fundamental, capital, or news perspective, the CXO industry is set to reach a turning point, and now is a good time to allocate to CXO. Highlights of Hangzhou Tigermed Consulting: Strong growth in new signed contracts, improved gross profit margin Among the many CXO enterprises, attention should be paid to Hangzhou Tigermed Consulting (300347.SZ, 03347), which has seen strong growth in new signed contracts and improvement in gross profit margin. As a leading CRO in the industry, Hangzhou Tigermed Consulting has accumulated over 2800 global clients, including multinational pharmaceutical companies and large domestic pharmaceutical companies, small and medium-sized innovative drug development enterprises, covering various types of products such as chemical drugs, biologics, vaccines, devices, and most disease areas including tumors, respiratory, infectious, endocrine, blood, neurological, cardiovascular, skin, immune, digestive, metabolic, rare diseases, etc. By the end of 2024, the company had accumulated over 4000 clinical operation project experiences, including over 910 Chinese Class 1 new drug clinical studies and over 140 international multicenter clinical studies. As of the end of 2024, the company had accumulated over 4000 clinical operation project experiences, including over 910 Chinese Class 1 new drug clinical studies and over 140 international multicenter clinical studies.On February 31st, the company's global number of employees reached 10,185, covering more than 30 countries, including over 1,600 employees working overseas.Due to industry cycles and structural changes, in 2024, Hangzhou Tigermed Consulting's operating income was 6.603 billion yuan, a year-on-year decrease of 10.58%; achieving a non-net profit attributable to the mother of 855 million yuan, a year-on-year decrease of 42.13%. The gross profit margin was 33.95%, a year-on-year decrease of 4.63 percentage points. Looking at 2024Q4 alone, the company achieved revenue of 1.536 billion yuan in 2024Q4, a year-on-year decrease of 11.42% and a quarter-on-quarter decrease of 10.12%; the non-net profit attributable to the mother was a loss of 37 million yuan, a year-on-year decrease of 113.34% and a quarter-on-quarter decrease of 114.78%; the gross profit margin in 2024Q4 was 17.70%, a year-on-year decrease of 15.12 percentage points and a quarter-on-quarter decrease of 19.58 percentage points. From a business perspective, in 2024, Hangzhou Tigermed Consulting's revenue for clinical trial technical services was 3.178 billion yuan, a year-on-year decrease of 23.75%. The revenue for clinical trial-related and laboratory services was 3.296 billion yuan, a year-on-year increase of 5.61%. In terms of data, Hangzhou Tigermed Consulting's performance in 2024 was mediocre, even bottoming in the industry. However, it is noted that in 2024, Hangzhou Tigermed Consulting added contract amounts totaling 10.12 billion yuan, with a net increase of 8.42 billion yuan, a year-on-year increase of 7.3%. As of the end of 2024, the company is conducting 831 drug clinical research projects, an increase of 79 compared to the previous year, including 536 domestic projects, 233 single overseas projects, and 62 MRCT projects. At the same time, the company is vigorously developing emerging businesses such as medical device clinical research. By the end of 2024, the company had a total of 614 medical device projects and had served over 2,100 clients globally; the registration team assisted in the approval of three products for market registration in China, and IND applications for 63 international multi-center clinical trials were approved in multiple countries. Furthermore, Hangzhou Tigermed Consulting's integrated service capabilities continue to strengthen. As of the end of 2024, Hangzhou Tigermed Consulting's global statistical business serves approximately 407 clients with 842 ongoing projects; the number of SMO projects increased from 1,952 at the end of 2023 to 2,253, and a total of 344 projects were completed in 2024, providing services to 15 Chinese Class I new drugs. As of the end of 2024, FRONTAGE has provided consistency evaluation services for 90 approved drugs, and there are 4,990 ongoing laboratory service projects. The growth in new signed contracts in 2024 reflects a recovery in demand to some extent. Existing contracts were affected by cancellations or changes prior to 2024. At the same time, the company has launched a series of targeted measures in BD, including establishing a Clinical Operations Strategy Committee, a multinational pharmaceutical solutions department, and six BD business units based on therapeutic areas or drug types. Nowadays, the BD competition in innovative drugs is becoming increasingly intense, and Hangzhou Tigermed Consulting's measures are expected to significantly increase the success rate of signed contracts. The growth of new signed contracts in 2024 continued into the first quarter of 2025. In 2025Q1, Hangzhou Tigermed Consulting's net new contract amount exceeded 2 billion yuan, an increase of 20% year-on-year; the gross profit margin also improved, rising from 17.7% in 2024Q4 to 30.03%. As business gradually recovers, the gross profit margin is expected to return to historical average levels. In conclusion, the CXO industry's turning point has arrived, and Hangzhou Tigermed Consulting, with its gradually recovering new signed contracts and gross profit margin, is worth paying attention to. In the context of the deepening global BD process for innovative drugs, Hangzhou Tigermed Consulting has launched a series of targeted measures that are expected to enhance the success rate of signed contracts, and the subsequent growth in new signed contract amounts is worth looking forward to. With the growth of orders, its performance is also expected to achieve rapid growth.