The three potential businesses have achieved rapid development. The revenue CAGR of CMC services and clinical research services in 2017-2020 was 38.9% and 43.6% respectively. The macromolecular and cell and gene therapy services began to be deployed in 2019, and its 1H21 revenue

continue to attack and make efforts on the whole line. While consolidating strong areas, the company actively cultivates three potential businesses. The integrated layout of CRO+CDMO is gradually growing, and its performance has entered a period of rapid growth. The company achieved revenue of 5.134 billion yuan (yoy+36.6%) in 2020. We expect the CAGR to exceed 35% in 21-23, based on: 1) Laboratory services: the world's top three in drug discovery, leading technology and technology and the earliest in-depth binding of customers, coupled with the strong driving force of high gross profit bioscience business, we expect the CAGR of the sector to exceed 30% in 21-23; 2) CMC: Coordinating end-to-end with laboratory business, orderly production capacity is deployed, and the funnel effect is highlighted. We expect the CAGR of the sector to exceed 35% in 21-23; 3) Clinical CRO: International high-quality services are stable and promising, and domestic integration is ready to go. We expect the CAGR of the sector to exceed 40% in 21-23; 4) Macromolecule and cell and gene therapy: Self-built + mergers and acquisitions (ABL + Absorption) occupy the high ground, and strong and high growth is expected.

Laboratory service: The strong will always be strong, the front-end locks customers and diverts back-end business

continues to capture global share with its leading advantage. The company's laboratory services mainly cover a number of services in the drug discovery and preclinical R&D stage. It is the most mature sector in the company. Its 1H21 achieved revenue of 2.027 billion yuan (yoy+41.9%, mainly from the European and American markets), maintaining a high-speed growth trend. We expect the annual revenue of the sector to exceed 30% in 21-23, based on: 1) The company has an internationally leading drug discovery platform, with a market share of the third in the world and continuous investment to consolidate its competitiveness; 2) The high gross profit bioscience business has strong growth, driving the sector's development to both quality and quality; 3) The drug discovery CRO market is booming, and the company has benefited significantly as a leader and achieved a growth rate that is continuously faster than the industry.

Drug Discovery CRO is the third in the world, continuously optimizing and consolidating the industry position

has entered the first echelon of global drug discovery CRO, and the front-end deeply binds customers. company has outstanding global competitiveness in the field of drug discovery CRO, with its global market share of 2.3% in 2018, ranking third in the world and second in China. Drug Discovery is the front-end link in drug research and development, and can deeply bind customers to strengthen service stickiness in the earliest stages. In 2020, the company's number of customers reached more than 1,500 (VS 623 in 2016), with a CAGR of nearly 25% from 2016 to 2020, and the number of customers showed a rapid growth trend. The company's current customers include all the top 20 pharmaceutical companies in the world. More than 90% of the 1H21 revenue comes from large, diverse and loyal repeat customers, demonstrating the high recognition of customers.

continues to invest in consolidating core competitiveness, the strong may be stronger:

1) business scope continues to expand, covering the full process services from drug discovery to IND: the company has a complete and leading business scope in the field of laboratory services, covering the full set of services from front-end discovery to IND, including laboratory chemistry (synthetic chemistry, drug chemistry , bioorganic chemistry, early process chemistry, synthesis, R&D analysis and separation of radiolabeled compound , chemical information services, etc.), biological sciences (in vitro biology, in vitro pharmacology, pharmacokinetic research on drug discovery and preclinical development, bioproduct research, etc.), and both China and the United States have laboratory bases, which can better coordinate and coordinate and serve global customers.

2) Continuously invest in new technologies to strengthen competitiveness: the company has continuously developed and improved its original technology and technology, established and improved technology platforms including the gene coding compound library (DEL), the chemical proteomics platform, the in-body imaging technology platform, and the 3D cell microsphere and organoid screening platform, and continuously consolidated its innovative service capabilities.

3) Continuous external acquisitions strengthen comprehensive service capabilities: the company completed the acquisition of Absorption Systems (100% stake) in November 2020, improving the layout of US laboratory services. Absorption Systems' core business includes providing DMPK/ADME and bioanalytic services required for small-molecular drugs and macromolecular drugs development. After the acquisition, it will further consolidate Kanglong's leading position in DMPK integrated services in the entire process of drug discovery and development. In addition, with Absorption Systems' ability to evaluate drugs in emerging fields such as rapidly developing cell and gene therapy, as well as service capabilities in ophthalmic diseases and medical device products, Kanglong will provide customers with more value-added services. In addition, in order to strengthen the quality control of experimental animals and strengthen their ability in biological sciences such as drug safety evaluation, the company completed the acquisition of Zhaoqing Chuang Pharmaceutical (50.01% stake) under the New Japan Science (Asia) Co., Ltd. on 1H21 to further enhance its overall competitiveness.

4) Personnel and production capacity continue to expand: As of 1H21, the company's laboratory service staff reached 6,122 (laboratory chemistry exceeds 4,400 and biological science exceeds 1,700). It is a team that is in a leading position in scale and experience worldwide, and is expanding year by year. The company's laboratory service supporting production capacity is also gradually increasing. In 2020, it added 22,500 square meters of laboratory service facilities in Beijing, and its laboratory service capabilities have been effectively expanded. At the same time, the first part of the second phase of Ningbo Park, the 120,000 square meters laboratory has been basically completed, and some have been put into use since 1Q21.

High gross profit bioscience business has grown strongly, driving the sector's quantity and quality to increase

High growth and high gross profit bioscience services have strongly driven . The company's laboratory services are subdivided into laboratory chemistry business and biological science services. Among them, biological science services include in vitro and in vitro drug metabolism and pharmacokinetics, in vitro biology and in vivo pharmacology, drug safety evaluation and US laboratory services. It was first derived from the biological science-related analytical needs generated by customers in the laboratory chemistry business. With the expansion of the business scale, it has become a relatively independent business department. Therefore, the biological science business and laboratory chemistry business have a high degree of homology. More than 80% of the revenue in 1H21 Bioscience comes from the synergy effect with laboratory chemistry, with high customer overlap and strong diversion effect. In recent years, the proportion of biological science services in laboratory service revenue has increased rapidly (from 17.4% in 2015 to 45.8% of 1H21), and its gross profit margin is relatively higher (we speculate that 1H21 is 45-50% vs 35-40% of laboratory chemistry). We believe that due to the higher income growth rate, the proportion of bioscience is expected to further increase, driving the sector to achieve both quality and quality improvement.

leader continues to benefit from the industry's high growth

Drug Discovery CRO market is growing rapidly, and the company as the leader continues to benefit from .According to Frost & Sullivan data, the global drug discovery CRO market was US$14.2 billion (penetration rate of 35.5%) in 2020 and is expected to reach US$20.4 billion (penetration rate of 43.3%) by 2024, with a CAGR of 9.5% from 2020 to 2024. China's drug discovery CRO market has grown significantly faster than the world. Its scale was US$1.6 billion (penetration rate of 43.2%) in 2020. It is expected to reach US$4.3 billion (penetration rate of 62.1%) by 2024, and its CAGR is as high as 28.0% from 2020 to 2024. It is in a booming stage. As a leader, the company is expected to continue to benefit and achieve a revenue growth rate that is continuously faster than the industry.

CMC: During the commercialization capacity and production capacity construction period, develop quality improvement and speed up

, one of the potential businesses, entering the fast lane of development. CMC (small molecule CDMO) services mainly provide pharmaceutical companies with chemical, preparation process development and small batch production services during the drug development stage. It has currently covered the process research and development and production needs of various customers in the clinical phase I, II and III drug development stages. Its 1H21 achieved revenue of 762 million yuan (yoy+50.5%, mainly from the European and American markets). We expect the CAGR of the sector to exceed 35% in 21-23 (VS CAGR of 29.5% in 2018-20), and the growth is expected to accelerate comprehensively, based on: 1) Laboratory services continue to divert orders to CMC, and the internal and external funnel effect continues to be demonstrated; 2) The capacity release enters the cashing period, and the back-end projects are about to be made; 3) Continuous investment to consolidate technical capabilities and global operations (China) The British team has good collaboration) The ability is highlighted; 4) Potential business positioning, and the industry's Dongfeng has broad prospects.

laboratory services continue to divert flow to CMC, and the internal funnel effect of CMC demonstrates the coordinated divert flow between

laboratory services and CMC, and continue to resonate with . laboratory services are strongly integrated with drug development. With its good reputation in laboratory services, the company has achieved continuous customer traffic to the CMC business. In 2020 and the first half of 2021, about 77% and 71% of the company's CMC business respectively came from the collaboration of existing customers in laboratory services (laboratory chemistry and biological sciences), and the full-process and integrated service platform model achieved seamless connection in all stages of drug research and development.

order acquisition capabilities are strong, and early projects continue to advance to the backend. The number of projects undertaken by the company's CMC has increased rapidly. The 1H21 service involves 695 drug molecules or intermediates (VS 364 in 2018), including 467 preclinical projects, 197 clinical phase I-II, 27 clinical phase III, and 4 process verification and commercialization stages. Customers in the CMC field have strong stickiness. Customers generally do not easily change CMC suppliers to improve efficiency. Therefore, early-stage projects (preclinical + phase I and II) generally show funnel effects and gradually promote empowerment of phase III and commercial projects with larger back-end amounts and stronger certainty. The vast majority of the company's current CMC revenue comes from early-stage projects. As orders continue to advance to the later stage, it is expected to gradually improve the company's CMC performance and growth visibility.

capacity release enters the cashing period, and the back-end project is working hard to continue to expand its production capacity, and Shaoxing large-scale mass production capacity enters the cashing period from 2H21. 's CMC business has facilities in Tianjin, Shaoxing, Ningbo , and the UK and is continuing to expand and increase production capacity. The company is expected to officially enter the commercial capacity realization period starting from 2021, driving the rapid growth of CMC revenue:

1) Tianjin: Including Tianjin Phase I, Phase II and Phase III projects, it mainly undertakes small molecule CMC process development services, of which the first two phases have been put into use. As of 1H21, the third phase of the Tianjin factory has been basically completed, and some have been put into use since 1Q21;

2) Ningbo: Including some early clinical development capacity of CMC, the first part of the second phase of the 120,000 square meters of laboratory has been basically completed, and some have been put into use since 1Q21. The second part of the second phase project, the construction of 42,000 square meters has begun. The company plans to complete the construction of the main structure in 2021 and start internal installation and construction;

3) Shaoxing: Mainly undertake projects in late clinical and commercial production.Among them, the first phase of the Shaoxing factory covers an area of ​​81,000 square meters will be carried out at full speed. After the project is completed, the capacity of chemical reactors will be increased by 600 cubic meters. We expect that 200 cubic meters of them will be delivered and used in 2H21, and the remaining 400 cubic meters of production capacity will be completed and delivered in 2022. The company's CMC has previously focused on early projects. With the start of production capacity in Shaoxing, it is expected to accelerate the realization of back-end projects and drive the CMC business to achieve both quality and quality improvement.

4) UK: In 2017, the company completed the acquisition of the factory assets of Merck located in Hoddesdon, UK, and formed a professional team to undertake the business and carry out good integration. At the same time, in recent years, the cooperation between Chinese and British teams has gradually increased, and the synergy should be more obvious. (Report source: Future Think Tank)

continues to consolidate its technical capabilities, and its global operation advantages are outstanding

technology leading and continuous strengthening . The development and production of small molecule drugs have extremely high requirements for chemical synthesis technology. While maintaining the advantages of traditional technology, the company actively strengthens the cultivation of new technologies in the chemistry and biology fields. 1) Traditional technology: The company currently can achieve reaction types including asymmetric synthesis, high-pressure hydrogenation, air and water sensitive reaction, metal catalysis, high-temperature reaction, low-temperature reaction, redox reaction, and other mainstream technology processes, and has completed hundreds of key product support for domestic and foreign customers that meet cGMP standards in the first to third phases of clinical clinical practice; 2) Strengthen new technology: In providing CMC services, the company practices the concept of green chemistry, vigorously applies new technologies such as high-throughput chemical reaction screening platform, fluid chemistry, biological enzyme catalysis, etc., to develop a safer and more efficient chemical process for customers. In addition, the chemical team joined hands with drug materials, crystallization research and development and preparation teams to further strengthen the competitive advantages of CMC services.

quality standards are in line with international . The company's raw materials production bases in China and the UK comply with cGMP standards, and production facilities include kg-level laboratories that comply with cGMP standards, multi-functional pilot production workshops and commercial production workshops. The specifications of reactor are relatively flexible and can meet different preparation needs. The company's quality assurance system follows the technical requirements for human drug registration. The International Coordination Association Conference Guidelines (ICH Guidelines) and supports compliance with the raw materials and drug development and production regulations issued by FDA, NMPA and EMA. It can also provide support for customers to conduct regulatory filing and cGMP review and preparation of complete regulatory data packages and documents in the United States, EU and Asia, and quality standards are benchmarked against international standards.

The advantages of global operation capabilities are highlighted. has CDMO operating bases in China and the UK. It is a rare company among local CDMO companies (mainly WuXi and Kanglong) that truly has global operation capabilities. Through the good cooperation between the Chinese and British teams, we can maximize efficiency and reduce costs, and provide customers with higher quality small molecule CDMO services.

potential business positioning, taking advantage of the industry's east wind, the prospects are broad

horizontally compared with the domestic CDMO leader, and the company has a great potential.We compared the main indicators of the company's CDMO business (revenue volume, growth rate, gross profit margin, number of projects undertaken and structure, etc.) with the leading domestic CDMO company WuXi AppTec (Hequan Pharmaceutical) and Kelly Ying, and concluded that the company is in an accelerated development stage of rapid advancement of early projects to the backend, gradual realization of production capacity and commercialization capabilities, and accelerated performance quality. Based on:

1) Revenue: The company's current CDMO revenue volume is still far from WuXi AppTec and Kelly Ying (762 million yuan of 1H21 vs 3.599 billion yuan of WuXi and Kelly Ying's 1.760 billion yuan), but the revenue growth rate is at a relatively high level (50.5% of 1H21 vs 66.5% of WuXi and Kelly Ying's 39.0%), and it is expected to continue to catch up and narrow the gap;

2) gross profit margin: Because most of the projects are in the early stage and the current scale effect is not obvious, the gross interest rate of the company's 1H21 CDMO business is lower than that of comparable companies (36.7% VS WuXi's 41.0% and Kailaiying's 44.9%), and there is great potential for improvement in the future;

3) number of projects: The company's overall CDMO project number has entered the first echelon of the industry (739 VS WuXi's 1,314 VS WuXi's 1,314, and Kailaiying's 686), but early-stage projects (preclinical + phase I-II) account for a relatively high proportion of the structure. With the production capacity of Shaoxing and the advancement of the funnel effect, the project structure is expected to gradually advance to the backend.

Clinical CRO: International high-quality services are expected to be stable and promising. The second potential business of

is the growth engine in China. 's clinical research service sector has been acquired through continuous acquisitions, including overseas clinical research services (Kanglong UK, Kanglong American Analytical Technology, Kanglong American Clinical Services) and domestic clinical research services (Liansta, Simmedy, DeTemai, etc.). The sector's 1H21 achieved revenue of 423 million yuan (yoy+74.3%), of which the domestic proportion has reached 48.4%. We believe that the company's clinical CRO sector's annual revenue CAGR is expected to exceed 40% in 21-23, based on: 1) Continuous mergers and acquisitions to fill the service scope and establish "Kanglong Chemical to Clinical" to integrate sector resources; 2) Domestic: The one-stop service capability of clinical CRO has been initially formed, and China has become the growth engine of sectors, driving both quality and efficiency; 3) Overseas: Radioactive labeling science is the engine, and steady growth is expected; 4) Horizontal benchmarking of industry leaders, and there is great potential for sector development.

After continuous mergers and acquisitions are completed, rapid integration and efficiency are improved

Continuous mergers and acquisitions are completed quickly in business scope . The company's clinical CRO business originated from consecutive acquisitions starting in 2016: 1) The company acquired Kanglong UK in 2016 and officially entered the field of clinical CRO services; 2) successively acquired Kanglong American analytical technology and Kanglong American clinical services in 2017, and the overseas clinical research service capabilities were further consolidated; 3) In May 2019, the company completed the acquisition of Nanjing Ximadi (a wholly-owned subsidiary of Nanjing Sirui), and the expansion of domestic clinical CRO business officially kicked off; 4) In June 2020, the company completed the acquisition of Beijing Liansida; 5) In September 2021, the company reached an acquisition agreement with Detaimai (Hangzhou). Since then, the company's domestic and foreign clinical CRO layout has become more perfect and has entered a stage of integration, optimization and rapid development.

established the "Kanglong Clinical" integrated sector resource . The company's overseas clinical research services include radiolabeling science (UK + US) and early clinical trial services (US). It mainly relies on multiple subsidiaries such as Himadi, Liansta, and DeTemai. In May 2021, the company announced the establishment of Kanglong Huacheng (Chengdu) Clinical Research Service Co., Ltd. (referred to as "Kanglong Huacheng Clinical"). After its establishment, it will integrate the clinical R&D capabilities of each subsidiary and department, optimize resource allocation, and build a deeply integrated clinical R&D service platform.

Domestic: Open up integrated service capabilities, and take strong strategic focus to attack

basically build integrated service capabilities, and accumulate strength and make progress in progress .Domestic clinical CRO is the strategic focus of the sector. Relying on the domestic platforms acquired successively (LianSta, Ximadi, DeTaimai, Facui, Enyuan Pharmaceutical, etc.), it has initially integrated and built a full set of clinical CRO services including clinical operations, clinical on-site management, data management and statistics, regulatory registration, medical affairs, quantitative pharmacology, subject recruitment, biological sample analysis, pharmacovigilance, medical device services, etc. We believe that domestic clinical CRO is the future sector growth engine, and the proportion of clinical CRO revenue in 2021 is expected to exceed 50% (VS 1H21 48.4%), and it is expected to further improve and lead sector growth in the future.

Simmadi: Relying on the advantageous business of digital systems, the service scope is continuously extended . In May 2019, the company completed the acquisition of 55.56% equity of Nanjing Sirui, opening up the Chinese clinical CRO market. Nanjing Sirui was established in 2017 and mainly provides services through its wholly-owned subsidiary, Cymphony. Its business scope includes supervision and regulatory registration, medical affairs, clinical operations, data management and statistical analysis, biological sample analysis, pharmacovigilance, medical device services, etc. Headquartered in Nanjing, Ximadi currently serves outlets covering 15 cities and the United States, with a total of more than 700 employees (as of 1H21), and has provided services to nearly 200 customers around the world. We believe that after entering the Kanglong system, Cimmedie is expected to usher in rapid development, based on: 1) a wide range of services and continuous expansion; 2) an excellent management team and rich industry experience; 3) a brand power is expected to improve after entering the Kanglong system, and it is expected to gradually enjoy traffic diversion orders for front-end business.

Lianshida: SMO has a leading capability in the industry, and it is like a tiger with wings after entering the Kanglong system. In June 2020, the company completed the holding acquisition of Beijing Lianshida (a total of 68% of the shares after two acquisitions). Founded in 2012, Lianshida focuses on providing one-stop full-process services for on-site clinical research management, including CRC services, hospital research and selection, SSU rapid start-up, subject recruitment and management, quality assurance and training, post-market research, etc. It is headquartered in Beijing. We believe that Liansta has strong comprehensive strength and is expected to join forces after entering the Kanglong system, ushering in a period of rapid performance growth. Based on:

1) strong brand strength and rich project experience. Lianshida is a leading SMO (clinical experiment site management organization) enterprise in China. Its SMO capabilities and CRC (clinical research coordinator) personnel are leading in the industry. The company has rich project experience. In the field of clinical research field services, the company has served more than 1,000 clinical research field projects of 1H21, and has reached stable cooperative relationships with more than 600 hospitals, 85% of which are Class 1 new drugs and biological products; in the field of subject recruitment services, the company has served more than 170 services of 1H21, with more than 11,000 cases of recruitment and more than 860 cooperative hospitals; in the field of device clinical trials and regulatory registration consulting services, the company has served more than 100 companies as of 1H21.

2) Continuously expand and improve production capacity and service scope . Since its establishment, Liansta has achieved rapid expansion of its business and team size. Its business covers cities from 26 in 2013 to 135 in 1H21, and its team size has grown from 65 in 2013 to nearly 1,500 in 1H21. So far, more than 40 varieties have passed verification and listing. At the same time, the company actively expands its business scope through external mergers and acquisitions. In November 2020, Lianshida announced the acquisition of 100% of the equity of Fahui Medical, to enhance its service capabilities in the fields of medical device compliance and clinical research, and to accelerate the process of medical devices serving patients.

3) The SMO industry has grown rapidly, and the company continues to benefit as a market leader. According to Frost & Sullivan's data, my country's SMO market size was US$262 million in 2019, and it is expected to reach US$1.368 billion by 2024, with a CAGR of up to 39.2% from 2019 to 2024. As an industry leader, Liansta is expected to continue to benefit from the high prosperity of the industry.

DeTaimai: Relying on its advantageous business, pharmacovigilance and medical capabilities, it is constantly developing. In September 2021, "Kanglong Clinical" reached an acquisition agreement with DeTaimai (Hangzhou).DeTemai was founded in 2018. It has the main feature of integrated pharmacovigilance. It also covers high-end medical and pharmaceutical consulting, medical supervision, medical writing, clinical registration, phase one clinical service and integrated information platform software and other services. It has provided services to more than 100 customers. Dr. Li Hao is the founder of DeTemai. He graduated from Tongji Medical University and Union Medical University. Later, he studied under the Nobel Prize winner Professor Oliver Smithies. He worked as a postdoctoral fellow at the University of North Carolina in the United States. He is currently a special teacher in the medical school of Tsinghua University and a master's supervisor. Dr. Li Hao has more than 20 years of clinical research industry experience. He has served as the manager and executive director of multinational pharmaceutical companies such as Quintile, Abbott, Sanofi, Squibb, etc., and has served as the founder and managing director of Tiger Yitan and the chief medical officer of Tiger Pharmaceutical. Through this acquisition, Kanglong can further improve its capabilities in pharmacovigilance, medicine and other aspects, and further improve the domestic clinical integrated service system. (Report source: Future Think Tank)

Overseas: Radioactive labeling science is the growth engine, steady growth can be expected

Radioactive labeling science is the highlight of growth, steady growth can be expected overseas. The company's overseas clinical research services include radiolabeling, scientific and early clinical trial services, among which the unique integrated service "radioisotope compound synthesis-clinical-analysis" platform is the main highlight of overseas services. As an important drug metabolism analysis technology during clinical period, radioisotope analysis technology is crucial. After the company's US-based clinical center obtained a radioisotope use license in early 2018, the company became the only supplier of integrated solutions in the field, including radioisotope compound synthesis and human ADME research using conventional isotope detection analysis or high-sensitivity isotope AMS technology. We expect that with the leadership of this technology field, the company's overseas clinical CRO revenue will be expected to grow steadily.

horizontally benchmarks the industry leader, and has great potential for future development. The clinical CRO industry is growing rapidly and is the largest sub-field of the CRO market. According to Frost & Sullivan data, the clinical CRO market size in China was US$4.4 billion in 2020, and it is expected to reach US$13.7 billion by 2024, with a CAGR of 33.1% from 2020 to 2024, far exceeding the global growth rate (9.5% from 2020 to 2024). Clinical CRO is the largest sub-field in the CRO market, with global and Chinese market share of 64.3% and 55.0% respectively in 2020. The company's current clinical CRO revenue volume is still small and has great potential for future development.

horizontally benchmarks the leading clinical CROs at home and abroad, and the company has broad potential for quality improvement. We compared the main indicators of the company's clinical CRO business (revenue volume, growth rate, gross profit margin, number of employees, per capita yield, etc.) with leading domestic and foreign companies Tiger Pharmaceuticals and IQVIA, and concluded that the company is in the accelerated development stage of rapid advancement of early projects and accelerated performance quality. Based on: 1) Revenue: There is still a big gap with Tiger and IQVIA (420 million yuan of 1H21 vs Tiger 2.06 billion yuan, and IQVIA's 24.28 billion yuan), but the growth rate is significantly faster (1H21 growth rate is 74.3% VS Tiger 41.6% and IQVIA's 40.5%), which is expected to quickly catch up and narrow the gap; 2) Gross profit margin: Due to the large number of projects, the current scale effect is still Due to factors such as inconspicuous and the number of new staff in the short term, the company's 1H21 clinical CRO gross profit margin is lower than that of comparable companies (14.1% VS 47.6% of Tiger and 28.8% of IQVIA), which has great potential for improvement; 3) Number of employees and yields: Compared with Tiger and IQVIA, the total number of employees and average employee yields of the company's clinical CRO have a lot of room for improvement.

Macromolecules and cells and gene therapy: Star of tomorrow, rising

Potential business third, long-term strategic sector .The company has been deploying macromolecular and cell and gene therapy services since 2019. Through self-built and mergers and acquisitions, the sector has achieved revenue of 71.66 million yuan (VS 1H20's 4.9 million yuan), which is expected to start a period of rapid growth. It is optimistic that it will achieve revenue of 300 million to 400 million yuan in 2023, gradually becoming the fourth growth pillar, based on: 1) Endurance + Extension quickly improves core competitiveness; 2) Complete business scope and extensive growth points; 3) The industry is entering the fast lane of development.

1) Endogenous and externally extend rapidly improve the service capabilities of the sector. acquired Absorption Systems in the United States in November 2020 to enter the laboratory service field of cell and gene therapy; in April 2021, it completed the acquisition of Allergan Biologics Limited (ABL, now renamed Pharmaron Biologics UK), a subsidiary of AbbVie, in Liverpool, UK, to enter the field of cell and gene therapy CDMO, and will provide services to customers through its advanced and flexible cGMP production facilities and more than 100 experienced scientific research and production personnel; in addition, the company is also actively building its own core competitiveness, and its first phase of Hangzhou Bay Second Park is the first project as the company's macromolecular drug CDMO service base (nearly 70,000 square meters). The civil construction has been completed, and the company is expected to be in 2023 In the first half of 2018, we began to undertake large-scale GMP production service projects. As of 1H21, the company's macromolecular and cell and gene therapy service sector has reached 270 employees.

2) The business scope is relatively complete and the growth points are wide. The company has a relatively complete range of services in the field of macromolecular and cell and gene therapy. It currently covers four sectors: four sectors: macromolecular drug discovery services (mainly relying on self-built Beijing base), cell and gene therapy laboratory services (mainly relying on Absorption), cell and gene therapy CDMO (mainly relying on Pharmaron Biologics UK) and macromolecular drug CDMO (mainly relying on Phase I project of Hangzhou Bay Second Park in the future):

① Among them, macromolecular drug discovery services include macromolecular drug plasmid design, cell screening, target macromolecular expression and purification, development of target macromolecular analysis methods and their analysis and identification of products, mainly serving the various needs of cells and proteins, including monoclonal antibodies in the early stages of research and development;

② Cell and gene therapy laboratory services include the development and verification of various proteins and cell analysis methods, and various DNA and RNA Development and verification of analysis methods, the activity, toxicity, tissue distribution, virus spread analysis and quantitative analysis of cells and gene products can meet the special requirements of cells and gene products for analysis methods in preclinical and clinical development and market stages;

③Cell and gene therapy CDMO contains plasmid synthesis, cell line development, cell bank establishment, production process development and optimization, preparation process optimization, product mass production, analysis method development and verification, product related impurity identification and analysis, stability evaluation, product analysis and identification and GMP batch release, etc.;

④Macromolecular drug CDMO, the company is accelerating the construction of the macromolecular drug CDMO platform (Phase I of Hangzhou Bay Second Park), and after completion, it will be able to provide cell line and cell culture technology, upstream and downstream production technology, preparation prescription and filling production technology, and analytical methods development services, and at the same time provide 200L Production services for stock solution and preparation from the pilot scale of 2000L to the commercialization stage.

3) The industry is developing rapidly and the prosperity is rising. According to Frost & Sullivan data, the market size of China's macromolecule CDMO in 2020 was 9.1 billion yuan, with a CAGR of 38.3% from 2016 to 2020, which is in a period of rapid growth (VS 17.6% of the global market). At the same time, the outsourcing field of cell and gene therapy is also booming. The global cell and gene therapy CRO and CDMO markets in 2020 were US$705 and 1.719 billion, respectively, with their CAGRs from 2016 to 2020 being 15.5% and 22.4% respectively. The global market is also growing rapidly. The company is expected to continue to benefit from the high prosperity of the industry and achieve rapid development.

, profit forecast

We expect that under the background of the high prosperity of the industry, the company is expected to continue to make efforts with the comprehensive layout of CRO+CDMO integrated R&D and production service platform.We expect the company's operating income in 21-23 will be RMB 7.165/9.687/12.893 billion, a year-on-year increase of 39.6%/35.2%/33.1%, and a net profit attributable to shareholders of RMB 1.396/1.932/2.648 billion, a year-on-year increase of 19.1%/38.4%/37.1%.

profit forecast and key assumptions:

1) In 2020, the company's laboratory service business revenue was 3.263 billion yuan, a year-on-year increase of 37.1% (1H21 revenue was 2.027 billion yuan, a year-on-year increase of 41.9%. Benefiting from the reasonable optimization of the company's global resources and the accumulated laboratory service capabilities over the years, the company currently has abundant order reserves, and with the further integration of the software and hardware platform of the newly acquired Absorption System and the company's existing resources, the relevant production capacity will be further released. We expect the company's laboratory service business revenue growth rate to be 33.0%/32.0%/30.0% in 21-23. The company's 20-year gross profit margin of laboratory services was 42.7%, an increase of 2.4pct year-on-year, mainly due to the continuous increase in the contribution of high-gross profitable bioscience services revenue (from 17.4% in 2015 to 41.3% in 2020). With the further increase in scale effect and the proportion of bioscience revenue, the sector's gross profit margin is expected to continue to increase steadily. We expect the company's laboratory service business gross profit margin to be 43.2%/43.4%/43.6% from 21 to 23.

2) In 2020, the company's CMC business revenue was 1.222 billion yuan, a year-on-year increase of 35.5% (1H21 revenue was 762 million yuan, a year-on-year increase of 50.5%). With the continuous diversion of many in-hand drug discovery projects, the expansion of its own CMC service scope and the improvement of technical capabilities, and the release of new production capacity such as Shaoxing bases, the company's CMC revenue is expected to maintain rapid growth. We expect the year-on-year growth rate of the company's CMC business revenue from 21 to 23 years is 40.0%/40.0%/38.0%. The company's 20-year CMC project gross profit margin was 32.7%, an increase of 4.9pct year-on-year. Thanks to the continued manifestation of internal business synergy and overall scale effects, with the gradual realization of commercial production capacity (the increase in commercial capacity utilization can generally drive the increase in CMC gross profit margin), we expect the company's CMC business gross profit margin to be 38.0%/38.5%/39.0% from 21 to 23.

3) In 2020, the company's clinical CRO business revenue was RMB 629 million, a year-on-year increase of 37.9% (1H21 revenue was RMB 423 million, a year-on-year increase of 74.3%. With its unique overseas "radioisotope compound synthesis-clinical-analysis" integrated service platform and domestic full-process service capabilities, the company is expected to continue to undertake a large number of customer orders. We expect the year-on-year growth rate of the company's clinical CRO business revenue to be 50%/38%/35% from 21 to 23. The company's 20-year clinical CRO project gross profit margin was 18.8%, a year-on-year decrease of 6.2pct, with a large investment in new business expansion period and personnel costs. With the establishment of Kanglong Chemical (Chengdu) Clinical Research Service Center, the company will deeply integrate its existing clinical CRO service capabilities. With the continuous improvement of scale effect, we expect the gross profit margin of clinical CRO business to rise steadily and slightly, and it is expected to be 16.0%/18.0%/20.0% respectively in 21-23.

4) The company's macromolecular and cell and gene therapy business began to be deployed in 2019, with revenue of 1H21 of RMB 71.66 million, a year-on-year increase of 1363.3%. With the successful merger and acquisition of Absorption System and Allergan Biologics Limited, the continuous production of related new bases (Phase I of Hangzhou Bay Second Park) and the further optimization of internal integration, the macromolecular and cell and gene therapy businesses are expected to become another major driving factor for the company's business growth. We expect their revenue to reach RMB 150 million/240 million/360 million respectively in 21-23, and the year-on-year growth rate in 22-23 was 60.0%/50.0% respectively (new additions and consolidation contributions in 22-21). The company's 1H21 macromolecular and cell and gene therapy projects have a gross profit margin of 3.0%, mainly due to the large investment in various costs in the early stage of the business. As the project structure in the later stage becomes stable and the scale effect gradually emerges, the gross profit margin is expected to gradually increase. We expect its gross profit margins to be 5.0%/10.0%/15.0% respectively in 21-23.

5) Sales expense rate: The company's sales expense rate in 20 years was 1.8%, a year-on-year decrease of 0.1pct. Considering the increase in scale effect with the increase in revenue volume, we expect the company's sales expense ratio to decline slightly in 21-23, to 1.5%/1.4%/1.4% respectively.

6) Management expense ratio: The company's 20-year management expense ratio was 12.7%, a year-on-year decrease of 0.5pct. With the increase in revenue volume and the scale effect gradually increases, we expect the company's management expense ratios in 21-23 will be 11.2%/11.0%/10.9% respectively.

7) R&D expense rate: The company's R&D expense rate in 20 years was 2.1%, an increase of 0.4pct year-on-year. As the revenue volume increases, the scale effect is expected to gradually reflect. We expect the R&D expense rate to be 1.8%/1.7%/1.6% in 21-23.

(This article is for reference only and does not represent any of our investment advice. If you need to use relevant information, please refer to the original text of the report.)

Selected report source: [Future Think Tank] "Link" .