The Zhitong Finance App learned that Guoxin Securities released a research report saying that looking ahead to the market, it is recommended to focus on two main investment opportunities: 1) After an earlier correction, the current valuation has fully reflected concerns about future geopolitical uncertainty. Revenue and new signings remain steady, and focus on CXO leaders with good competitive landscape and efficiency and cost advantages, such as Yao Ming Kangde (603259.SH), Yang Ming Biotech (02269), Kanglong Chemical (300759.SZ), Gloria Ying (002821.SZ), etc. 2) C, polypeptides, oligonucleotides, The rapid development of new molecular businesses such as CGT is expected to further open up room for growth in the CXO sector. It is recommended to focus on investment opportunities in related industrial chains, such as Pharmaco-Ming Joint (02268) and Nootech (688076.SH).

The main views of Guoxin Securities are as follows:

The revenue side and profit side of the CXO sector were under pressure in the first half of 2024. In the first half of 2024, the CXO sector (target of the 25 sample companies) had revenue of 47.5 billion yuan (-9.0%), net profit attributable to mother 7.8 billion yuan (-34.2%), after deducting non-return net profit of 7.2 billion yuan (-30.5%). Compared with the rapid increase in performance in previous years, since entering 2023, the CXO sector's revenue growth rate has slowed markedly under the general environment where global pharmaceutical bioinvestment and financing is cold. Combined with increased competition in some fields and the effects of biological asset impairment, the profit side is under pressure. As overseas investment and financing resume quarterly, the Federal Reserve begins a cycle of interest rate cuts. The revenue and profits of some CXO sector companies are expected to show a quarter-on-quarter improvement trend, and companies that account for a large share of overseas business are expected to improve even more clearly.

CDMO: Excluding large COVID-19 order targets, sector revenue increased slightly, and revenue from leading targets was steady. Excluding the three companies with a high COVID-19 order base, Yao Ming Kangde, Boteng Shares, and Gloria Ying, the A-share CDMO segment's 24H1/24Q1/24Q2 revenue was +3.1%/+0.4%/+5.9%, respectively, and net profit to mother was -8.1%/-9.4%/-7.0%, respectively. After excluding the impact of major COVID-19 orders, the revenue growth rates of Yao Ming Kangde, Pharmaceutical Biotech, and Gloria Ying 24H1 were about -1%, +8%, and +1% respectively, and the revenue of leading CDMO targets remained steady.

Pre-clinical CRO: Generic CRO performance and orders have maintained steady growth. In the first half of 2024, the pre-clinical CRO sector (the target of the 9 samples) earned 9.2 billion yuan (-3.6%), net profit to mother was 1.1 billion yuan (-12.8%), after deducting non-return net profit of 0.4 billion yuan (-65.9%). On a quarterly basis, 24Q1/24Q2 revenue was 4.3/4.9 billion yuan (-4.2%/-3.1%), net profit due to mother 0.1/1.1 billion yuan (-92.0%/+79.3%), net profit not attributable to mother -0.02/0.4 billion yuan (-102.5%/-20.0%). Among them: 1) The profit side of pre-clinical CRO, mainly in the innovative drug business, is under pressure, such as Zhaoyan New Pharmaceutical, Medici, etc., and new orders declined year on year. Among them, Zhaoyan New Pharmaceutical also faced losses due to impairment of biological assets, and Kanglong Huasheng, an integrated leader, can better absorb this impact. In the future, we need to pay attention to the pace of recovery in investment and financing and the improvement of corporate orders. 2) Generic drug CRO performance and orders have maintained steady growth. Generic drug CRO is less affected by investment and financing, and Sunshine Nuohe and Baicheng Pharmaceuticals 24H1 performance and new orders have grown relatively steadily.

Clinical CRO: Order prices are under pressure, and both revenue and profit in the clinical CRO sector declined in the first half of 2024. In the first half of 2024, the clinical CRO segment (the target of the 4 sample companies) earned 4.5 billion yuan (-3.9%), net profit to mother 0.6 billion yuan (-59.0%), after deducting net profit of 0.8 billion yuan (-17.6%) of non-return mother's net profit. On a quarterly basis, 24Q1/24Q2 revenue was 2.2/2.3 billion yuan (-1.6%/-5.9%), net profit due to mother 0.3/0.3 billion yuan (-53.1%/-63.1%), net profit not attributable to mother 0.4/0.4 billion yuan (-17.1%/-18.0%). Due to increased competition, order prices are under pressure.

Investment suggestions: Looking ahead to the future market, it is recommended to focus on investment opportunities in the two main lines: 1) After an early correction, the current valuation has fully reflected concerns about future geopolitical uncertainty. Leading revenue and new signings are still steady, focusing on CXO leaders with a good competitive pattern and efficiency and cost advantages, such as Pharmaceutical Kangde, Pharmaceutical Biotech, Kanglong Chemical, Gloria Ying, etc.; 2) The rapid development of new molecular businesses such as ADC, peptides, oligonucleotides, and CGT is expected to further open up growth space in the CXO sector. Investment opportunities, such as Pharmacovigilance and Nottel biology etc.

Risk warning: Order acquisition and execution fall short of expectations; competition increases risk; risk of impairment of biological assets; risk of drug development failure; risk of pharmaceutical regulatory policy; geopolitical risk.