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Biocytogen (2315 HK) Summary

Core Content and Key Information

Biocytogen (2315 HK) reported a 51% YoY revenue growth in FY22, reaching RMB534 million, aligning with estimates. The company's overseas revenue grew by 82% YoY to RMB246 million, which accounted for 46% of total revenue, up from 35% in FY21. This growth was primarily driven by the expansion of its operations in Europe and the US, as well as strong performance in the pre-clinical CRO service and antibody development businesses.

The pre-clinical CRO service business saw 54% YoY revenue growth to RMB406 million, with pharmacology & efficacy evaluation and animal model selling contributing 67% and 57% growth, respectively. Despite challenges such as COVID-19 disruptions and increasing cost of capital, the antibody development business maintained 43% YoY growth.

In FY22, Biocytogen recorded a net loss of RMB602 million, compared to RMB546 million in FY21. The R&D cost was RMB699 million, representing 131% of total revenue, up from 158% in FY21. The SG&A ratio decreased to 59% from 65%, indicating improved cost efficiency.

As of end-2022, the company had a cash balance of RMB627 million, providing financial stability for future operations.

Main Business Growth Drivers

• Fully human antibody discovery platforms are key to driving deal and revenue growth.
• As of end-2022, Biocytogen has 34 co-development deals and out-licensed its RenMice platforms to 17 leading biotech/biopharma companies, with 40 projects in progress.
• The RenNano platform enables the production of fully human single chain antibodies for drug development without further in vitro humanization.
• The TCRm platform allows for targeting intracellular antigens, overcoming limitations of traditional antibodies.

Revenue and Profit Projections

Financial Highlights

• R&D expenses increased to RMB699 million in FY22, but SG&A costs decreased, improving cost efficiency.
• Net profit turned positive in FY25E, with an expected RMB113 million.
• EPS (Reported) is projected to increase from -RMB1.58 in FY22A to RMB0.28 in FY25E.
• ROE improved from -50.1% in FY22A to 14.1% in FY25E.

Valuation and Investment Recommendation

• Maintain BUY recommendation.
• Target Price revised to HK$37.96 from HK$40.51.
• DCF-based valuation shows equity value at RMB13,340 million as of FY23E.
• Terminal value is estimated at RMB36,681 million in 2034E.
• WACC is 11.1%, with a terminal growth rate of 3.0%.

Key Financial Ratios

• Gross margin is expected to increase to 76.01% in FY25E.
• Operating margin improved significantly, from -99.4% in FY22A to 16.3% in FY25E.
• Current ratio decreased from 3.5 in FY20A to 1.8 in FY23E.
• Receivable turnover days improved from 106.1 in FY21A to 75.0 in FY23E.
• Inventory turnover days remained stable at 47.8 in FY23E and beyond.

Analyst Ratings and Disclosures

• Analyst Certification: The views expressed reflect the analyst's personal views and there are no conflicts of interest.
• CMBIGM Ratings:
  • BUY: Stock with potential return of over 15% over next 12 months.
  • HOLD: Stock with potential return of +15% to -10% over next 12 months.
  • SELL: Stock with potential loss of over 10% over next 12 months.
• Important Disclosures:
  • The report is for informational purposes only.
  • CMBIGM is not a registered broker-dealer in the U.S. or Singapore.
  • No individually tailored investment advice is provided.
  • The value and returns of investments are uncertain and not guaranteed.

Shareholding and Market Performance

• Management holds 27.5% of shares.
• SDIC Shanghai holds 18.3% of shares.
• Market Cap: HK$9,965 million.
• Share Performance:
  • 1-month: 0.0%
  • 3-months: -1.4%
  • 6-months: -6.0%
  • 12-months: -14.2%

Conclusion

Biocytogen is leveraging its fully human antibody platforms to drive deal and revenue growth, despite financial challenges in FY22. The company is expanding its global footprint, and while it reported a net loss in FY22, it is expected to turn profitable by FY25E. With improved cost efficiency and a strong cash position, Biocytogen is positioned for long-term growth. The BUY recommendation reflects the potential for significant returns in the next 12 months.