泰格医药(300347)Tigermed, a leading contract research organization (CRO) for innovativedrugs, boasts the largest market share in China. Despite Covid-19resurgences in some regions, the Company achieved rapid growth ofoperating revenue in 2Q22. Its CRO multi-module businesses aredeveloping synchronously, while its internationalization is accelerating.Thanks to rapidly growing overall orders, Tigermed has high visibility ofrevenue growth in the next 2-3 years. Besides, good capital operationcapability may help the Company further open up growth headroom inthe international market. We apply 29x 2023E PE to arrive at a targetprice of Rmb135 and reiterate the “BUY” rating.Strong growth momentum despite Covid-19 resurgences; continuousand rapid growth of operating revenue.For 1H22, Tigermed posted total operating revenue of Rmb3,594mn(+74.78% YoY; still over 40% even if the impact of Covid-19-related projects isexcluded), attributable net profit (ANP) of Rmb1,192mn (-5.02% YoY), andrecurring ANP of Rmb771mn (+42.12% YoY). The YoY decrease in theCompany’s net profit was mainly due to the narrowing of fair value growth inthe current period. In 2Q22 alone, Tigermed achieved operating revenue ofRmb1,776mn (+53.87% YoY, -2.28% QoQ), ANP of Rmb674mn (-15.75%YoY, +29.93% QoQ), and recurring ANP of Rmb393mn (+25.21% YoY,+3.85% QoQ). For 1H22, the Company’s gross profit margin (GPM) came in at39.5% (-7.5ppts YoY), with net profit margin (NPM) at 24.4% (-9.3ppts YoY),and recurring NPM at 21.46% (-4.93ppts YoY). Hereinto, the GPM of clinicaltechnical services was 36.9% (-3.7ppts YoY), the GPM of clinical trials andrelated services and laboratory services was 43.4% (basically flat YoY). Wejudge that the decline in Tigermed’s profit margin level was mainly due to: 1.The Covid-19 projects needed more handling fees, leading to a substantialincrease in related costs of direct projects (the revenue proportion of directprojects increased from 15.8% a year ago to 28.9%); 2. Covid-19 resurgencesin some localities have led to decline in the operation and execution efficiencyof some clinical trials. Thanks to improved sales per employee, the Company’sexpense ratios have dropped significantly. During the reporting period, theCompany’s selling/administrative/R&D/financial expense ratio came in at2.23%/8.73%/3.07%/-0.83%, -1.01ppts/-3.22ppts/-1.45ppts/+3.56ppts from1H21, respectively. Hereinto, the increase of financial expenses was mainlydue to larger interest payable caused by more short-term loans and smallerinterest receivable from funds raised by H-share issuance. At the end of theperiod, the Company’s contractual liabilities totaled Rmb820mn, up by 30.74%YoY (we judge that the Company’s backlog orders maintained a rapid growthtrend). In 1H22, the Company’s operating cash flow amounted to Rmb360mn(-25.73% YoY). We estimate that it was mainly due to limited payments fromsome customers during the pandemic lockdown.CRO multi-module businesses are developing synchronously, whileinternationalization is accelerating.At present, Tigermed is the only Chinese organization among the world’Top10 clinical CROs, with a global market share of 1.3%.Revenue by business in 1H22:—The revenue from clinical trial technical services was Rmb2,172mn, up by110.16% YoY. The high growth was partly thanks to revenue from relatedclinical trials of Covid-19 projects (the estimated operating revenue growth isabout 50% after excluding the influence of related projects). At the end of thereporting period, the Company had 607 ongoing drug clinical researchprojects, an increase of 116 YoY. Among them, 186 projects were in clinicaltrial Phase III and beyond, and 207 projects were overseas projects ormulti-regional clinical trial (MRCT) projects. There are 400 ongoing medicaldevice projects.—Revenue from clinical trials and related services and laboratory serviceswas Rmb1,381mn, a YoY increase of 35.88%. The number of data statisticsbusiness customers has increased from 163 to 208, and there are 786ongoing projects. In terms of site management organization (SMO), 217 newprojects had been added, and 1,469 projects were being implemented at theend of the reporting period. The SMO business line now has 2,503employees, including 2,108 CRC employees.—The Company’s bioequivalence (BE) and laboratory service businesses aremainly undertaken by its subsidiary Frontage Holdings. In 1H22, FrontageHoldings achieved operating revenue of US$119mn (+39.7% YoY), net profitof US$13.1mn (+44.0% YoY), and ANP of US$18.8mn (+29.7% YoY). Itscontractual future revenue reached US$315mn (+44.4% YoY), with revenuefrom innovative drug projects accounting for 80%. By the end of the reportingperiod, the number of laboratory service projects in operation has increased to2,664. Frontage has further expanded its overseas capabilities. A newlaboratory of about 25,000sqft in Hayward, California, USA was put intooperation in May 2022, expanding Frontage’s bioanalysis and biologicsbusinesses in North America. In Jan 2022, Frontage completed the acquisitionof Experimur, expanding its pharmacological safety evaluation and toxicologyservice capabilities. In Feb 2022, Frontage rented a research facility of about200,000sqft in Wuhan Optics Valley Bio-City, which may be partially put intooperation in 1Q23. Its GMP kilogram-grade laboratory (c. 7,000sqft) and newpharmaceutical chemistry laboratory (170,000sqft) in Shanghai werecompleted and put into operation in 1H22.—Tigermed’s overseas business has been growing rapidly. Its overseasrevenue reached Rmb1,913mn, a YoY increase of 102.3%. During thereporting period, the Company’s number of completed projects (registeredwith the US Food and Drug Administration) increase by 67% YoY. TheCompany assisted in completing multiple MRCT regulatory applicationmaterials in more than 20 countries (incl. several emerging markets), andsuccessfully helped customers obtain multiple investigational new drug (IND)approvals. Its number of overseas employees increased to 1,151, covering 53countries in five continents.Continuous development of new businesses and new technologies;efficiency improvement through digitalization.Relying on years of experience in clinical businesses, Tigermed hasdeveloped new businesses with higher gross profit, and innovated digitaltechnologies, aiming to improve sales per employee. The Company hasstrengthened the building of pharmacovigilance team, as well as providedpharmacovigilance and drug safety monitoring solutions (from clinicalresearch to post-marketing links) for pharmaceutical and medical devicesectors worldwide. Its pharmacovigilance team now includes 128 members.Relying on the digital clinical trial platform (Tigermed Clinical Research) andthe risk-based quality management system, the Company keeps enhancing itsremote intelligent management and risk response capabilities, so as toimprove its clinical trial monitoring coverage and project managementefficiency, and optimize its cost and budget control. By the end of the reportingperiod, more than 800 pharmaceutical and biotech companies have usedTigermed Clinical Research for more than 3,000 clinical trials and relatedprojects; of which, more than 80 were large-scale Phase III clinical trialprojects. The introduction of technology platform and the improvement ofefficiency may further enlarge Tigermed’s market share and thus improve itsbargaining power.Potential risks:Less-than-expected R&D spending by pharmaceutical enterprises;smaller-than-expected ROI for the Company; and disappointinginternationalization progress.Earnings forecast, valuation and rating:Tigermed, a leading CRO for innovative drugs, boasts the largest marketshare in China. Despite Covid-19 resurgences in some localities, theCompany achieved rapid growth of operating revenue in 2Q22. Its CROmulti-module businesses are developing synchronously, while itsinternationalization is accelerating. Thanks to rapidly growing overall orderdemand, Tigermed has highly visible revenue growth in the next 2-3 years.Besides, good capital operation capability may help the Company further openup growth headroom in the international market. Considering the increase oforder demand and the expectation for fair value fluctuations in the future, weupgrade 2022E-24E EPS forecasts for Tigermed to Rmb3.87/4.66/5.65 (fromRmb3.84/4.62/5.65), with the current price corresponding to 2022E-24E PE of24x/20x/17x. Referring to the 32x average 2023E PE (Wind consensusexpectation) of comparable companies Joinn Laboratories (06127.HK) andMedicilon (688202.SH), and considering that Tigermed’s fair value income hasa relatively large impact on its net profit, but as an industry leader its corebusiness has a certain space for valuation premium, we apply 29x 2023E PEto arrive at a target price of Rmb135 and reiterate the “BUY” rating.
2022年半年报营业收入35.94亿元，同比增长+74.78%；归母净利润11.92亿元，同比增长-5.02%