New Stocks Outlook | "Hoarding Monkeys" Drag Down Profit Performance, Not Easy to Tell the Story of DingTai Pharmaceutical's "Water Seller"?

Recently, according to the disclosure by the Hong Kong Stock Exchange, Jiangsu Dingtai Pharmaceutical Research (Group) Co., Ltd. (referred to as Dingtai Pharmaceuticals) has submitted its listing application to the Main Board of the Hong Kong Stock Exchange with Citigroup and Haitong International as the joint sponsors. The prospectus shows that Dingtai Pharmaceuticals was established in 2008 and is a new type of Contract Research Organization (CRO) dedicated to providing integrated solutions based on disease biology for global pharmaceutical companies and research institutions. The company offers a comprehensive range of non-clinical safety, efficacy, drug metabolism and pharmacokinetics (DMPK) studies, as well as integrated clinical trial services covering from concept validation to pivotal trials, thus providing customers with full life-cycle research and development support. In the pharmaceutical research and development industry chain, CRO companies are often seen as "water sellers". The unique aspect of CRO companies is that regardless of the success of new drug development projects, CRO companies can obtain sustained and stable business income by providing professional services. Since 2025, with the strong recovery of the innovative drug industry driving the valuation recovery of the CRO sector, the stock prices of many relevant companies have reached new highs. As a direct reflection of the industry's prosperity, in the first half of this year, the scale of financing in the domestic innovative drug primary market increased by 45% year-on-year, reaching 32 billion yuan. At the same time, business development (BD) transactions were also very active, with more than 80 transactions and an average upfront payment of up to 850 million yuan. Benefiting from this strong industry growth, Dingtai Pharmaceuticals' listing plan has become one of the focus points in the current market. Steady increase in revenue, fluctuation in experimental animal prices drag down profits Despite the overall recovery of the industry, the internal business operations of Dingtai Pharmaceuticals are showing a "hot outside, cold inside" situation. From a financial performance perspective, the company's revenue remained stable overall during the past period, while net profits showed a declining trend. In the years 2022, 2023, and 2024, the company achieved revenues of approximately 725 million yuan, 767 million yuan, and 713 million yuan respectively, while profits for the period were approximately 143 million yuan, -51.946 million yuan, and -252 million yuan, with two consecutive years of losses. Although in the first half of 2025, the company's revenue increased by 21.41% year-on-year to 377 million yuan, and it achieved a profit of 64.712 million yuan, and the gross profit margin also increased from 32.54% to 38.9% compared to the same period last year, it has still not fully recovered to the previous high level of 48.44% in 2022. According to the company, the decrease in gross profit margin is mainly due to the increasing proportion of low-margin clinical trial service income, which rose from 10.9% in 2022 to 23.9% in the first half of 2025, reflecting the profitability pressure that the company faces during its business transformation process. In terms of business layout, during the record period, income from non-clinical and clinical services consistently accounted for over 95% of total revenue, while income from providing research animals to third parties was minimal. Since 2021, the company has strategically expanded its clinical services business, increasing its revenue share from 10.9% to 23.7% over three years, becoming the fastest-growing segment. At the same time, overseas expansion is also showing initial results, with the proportion of overseas revenue increasing significantly from 10.8% to 30.2% in the first half of 2025, showing its efforts in international expansion. With GLP certification and AAALAC international accreditation qualifications, the company has provided non-clinical research services to over 700 customers globally, and clinical services to over 130 customers, helping clients obtain over 200 NMPA approvals and over 40 approvals from overseas regulatory agencies. The diversified customer base and increasing international participation inject potential momentum into its long-term development. Despite signs of business recovery, there are still hidden concerns about Dingtai Pharmaceuticals' financial situation. In 2023 and 2024, losses of up to 196 million yuan and 206 million yuan, respectively, were caused by the redemption of debt resulting in net losses, which became the main reason for the company's net profit losses in recent years. As of June 30, 2025, the company's total current liabilities reached 3.534 billion yuan, while current assets were only 1.578 billion yuan, resulting in a liquidity gap of nearly 2 billion yuan. In terms of cash flow, except for a net operating cash inflow of 254 million yuan in 2022, the rest of the reporting period had a net outflow, with cash and cash equivalents totaling only 419 million yuan at the end of June 2025. The liquidity risk may be one of the core reasons for the company's desired IPO financing this time. If the listing process is obstructed or the valuation falls short of expectations, it will further exacerbate its financial pressure and become a major risk point for investors. Accelerated differentiation in the industry landscape, CRO track experiencing "two extremes" As a CRO company mainly focused on non-clinical research, Dingtai Pharmaceuticals' core competitiveness and potential risks are closely related to its control of NHP (non-human primate) resources. Experimental monkeys are irreplaceable models for evaluating drug safety due to their physiological similarity to humans, but their long reproductive cycles and limited supply make this resource a focal point of industry competition. In the Chinese CRO sector, NHP resources are highly concentrated among a few companies due to the slow reproduction and limited overall supply of NHPs. According to Frost & Sullivan data, Dingtai Pharmaceuticals has established one of China's most comprehensive non-human primate (NHP) disease model portfolios, supporting key non-clinical research in various disease areas. With its disease model projects, the company ranked as the third largest CRO in China in the field of efficacy research by related income calculations in 2024, having a certain market leading advantage. It is noteworthy that the drastic fluctuations in the prices of experimental monkeys have become an important factor affecting the stability of industry profits. From 2020 to 2022, affected by the pandemic, the price of experimental monkeys skyrocketed from 42,000 yuan per monkey to 184,000 yuan; then from 2022 to 2024, as the supply chain gradually recovered, market demand approached saturation, and alternative technologies developed, the price fell to 84,900 yuan; from 2024 to 2025, due to stable industry demand growth, the average price slightly rebounded to 92,000 yuan. The drastic price fluctuations have affected the performance of many companies that have a large amount of NHP resources. When NHP prices drop, companies will incur impairment losses on biological assets, such as Joinn Laboratories (06127), a CRO company that also "stocked monkeys", seeing a net loss of 114 million yuan in 2024 due to changes in the fair value of biological assets; starting from the second quarter of 2025, due to the recovery of experimental monkey prices, Joinn Laboratories turned losses into profits due to gains from changes in the fair value of biological assets. In the first half of 2025, Dingtai Pharmaceuticals' net operating cash outflow significantly widened, as the company purchased a large number of NHPs to expand its population at its Hainan base. This business characteristic makes its performance closely related to the price cycle of biological assets, presenting an important uncertainty factor in its future operations. Currently, the China Meheco Group's Research and Development Outsourcing (CRO) industry is undergoing significant differentiation, showing a development trend of "two extremes". In the first half of 2025, the performance of some leading companies was remarkable, such as Pharmaron Beijing (300759.SZ), achieving revenue of 6.441 billion yuan, a growth of 14.9% compared to the same period last year; with a non-GAAP net profit of 637 million yuan, a year-on-year increase of up to 36.66%. At the same time, there are also companies with poor performance, such as Hangzhou Tigermed Consulting (03347), one of the "CRO Four Dragons", with a revenue of 3.25 billion yuan in the first half, a 3.21% decrease year-on-year, and a significant decline in non-GAAP net profit by 67.09%, only reaching 2.11 billion yuan. With more mature pharmaceutical companies building their own clinical teams and Biotech companies gradually growing and reducing their dependence on clinical CROs, the demand for traditional clinical CRO services is facing significant pressure. In this context, market competition is becoming increasingly fierce, and the commercial value and growth potential of the clinical CRO track are being reevaluated by the capital markets. Looking at the industry landscape, Dingtai Pharmaceuticals has a significant gap in scale compared to leading companies. In the first half of 2025, Pharmaron Beijing, Hangzhou Tigermed Consulting, and Joinn Laboratories had revenues of 64.41 billion yuan, 32.50 billion yuan, and 6.69 billion yuan respectively, while Dingtai Pharmaceuticals' revenue for the same period was only 3.77 billion yuan. This scale difference places it in a relatively weak position in the increasingly competitive industry, facing even greater competitive pressure in future industry reshuffles. Overall, Dingtai Pharmaceuticals has established a competitive advantage in certain subfields based on its accumulation of NHP resources and disease models. However, the company still faces many challenges in terms of profitability, debt structure, and liquidity. In the context of an overall positive trend in the CRO industry, if this IPO can be successfully pushed forward, it may inject much-needed financial vitality into the company, relieve its debt pressure, but the long-term prospects of the company still depend on its ability to find a balance between business expansion and financial stability, as well as to build a sustainable moat in the fierce industry competition.