Zhongtai: The dawn of the CRO and CDMO sectors has arrived. Actively seize the opportunity at the bottom.

Zhongtai released a research report stating that excluding the impact of COVID-19, the growth of the CRO and CDMO sectors will continue to be stable in 2024, with a significant recovery expected in the first quarter of 2025. The turning point has arrived. In the CDMO sector, driven by the continued rapid growth of downstream single products, the demand for the production of chemical macromolecules and XDC CDMO such as peptides, oligonucleotides, and XDC is expected to increase rapidly. Investment opportunities in the related industry chain are continuously optimistic. With the gradual recovery of global investment and financing and the continuous extension of front-end projects to the back-end, small molecule CDMO is expected to gradually recover. It is recommended to pay attention to this. Regarding CRO: Since 2024, although the monthly CPI data overseas has fluctuated, there is hope for a gradual entry into a rate-cutting cycle overseas. Expectations for improvements in investment and financing are expected to marginally improve, and some companies have already seen a recovery in orders. It is estimated that integrated CRO/CDMO with overseas revenue as the main focus and domestic preclinical CRO may have the opportunity for valuation repair. The CRO sector has been greatly affected by the investment and financing environment both domestically and internationally. However, with the gradual strengthening of domestic policies, the sector is expected to gradually recover. There continues to be investment opportunities in clinical CRO. Zhongtai's main points are as follows: The CRO and CDMO sectors have shown a perfect end in the 2024 annual report and the first quarter of 2025, with Zhongtai selecting 28 representative and highly market-focused CRO and CDMO innovative drug industry core targets to form CRO and CDMO sectors. Various indicators are interpreted to discover industry trends behind the data. The growth of the sector excluding the impact of COVID-19 in 2024 is stable, with a significant recovery in the first quarter of 2025 as the turning point. 1) Continuous improvement in the first quarter of 2025: The core targets of the CRO and CDMO sectors in 2024 show a decrease in revenue of 1.8%, but after excluding the disruption of COVID-19, the revenue increased by 3.7%, net profit decreased by 15.5%, non-IFRS adjusted net profit decreased by 2.9%, and adjusted non-IFRS net profit decreased by 19.8%. Looking at quarterly data, revenue in the fourth quarter of 2024 increased by 6.9%, net income by 92.8%, and non-IFRS by 74.6%. In the first quarter of 2025, revenue increased by 13.8%, net income by 81.2%, and non-IFRS by 25.8%, showing a continuous improvement year-on-year. 2) Detailed analysis shows slight fluctuations in CDMO, while CRO maintains growth: 1) Small molecule CDMO: Revenue decreased by 15.7% due to a reduction in large order deliveries. 2) Large molecule CDMO: Continued rapid growth trend with revenue increasing by 13.0%. 3) Preclinical CRO: Revenue increased by 4.9% due to a slowdown in orders caused by fluctuations in investment and financing. 4) Clinical CRO: Slight revenue decrease of 4.9% due to price fluctuations domestically. 3) Continued improvement in demand: Due to the gradual recovery of global investment and financing in the first half of 2024, some companies with overseas revenue as their primary focus saw a gradual recovery in orders in 2024 and the first quarter of 2025, such as WuXi AppTec with a year-on-year increase of 47.1% in outstanding orders in the first quarter of 2025, WuXi XDC with a year-on-year increase of 71% in total outstanding orders by the end of 2024, and Porton Pharma Solutions with an increase of nearly 30% in outstanding orders. In addition, as domestic interest rate cuts gradually take effect, domestic CRO orders in the first quarter of 2025 also show a trend of gradual recovery, with Hangzhou Tigermed Consulting's net addition contract amount increasing by 20% and Joinn Laboratories' new signing orders increasing by 7.5%. 4) Supply side is expected to gradually clear: Fixed assets in the sector increased by 10.9% in 2024, while construction in progress decreased by 5.5%. In the first quarter of 2025, fixed assets increased by 6.3% and construction in progress increased by 3.2%. Risk warning events: The research report may have risks related to the lag or untimeliness of publicly available information, the risk of failed new drug development, exchange rate fluctuations, environmental protection and safety production risks, risks related to certain sample selection, or deviations from the actual situation.