Initiate at BUY. Joinn is a pioneer and a leader in China drug safety assessment (DSA) market with an established network covering both China and US markets. Our DCF-based TP of HK$107.65 implies 45x FY22E P/E and 34x FY23E P/E. In terms of P/E multiple, Joinn’s H share is currently trading at c. 20% discount to its H share peers, and c. 40% discount to its A share peers. We expect the stock to rerate on solid earnings growth.
　　Joinn is a leader in the fast-growing China DSA market. According to F&S, Joinn　is the largest player in China non-clinical DSA market with 16% market share as of 2019. As an early mover in China’s DSA sector, Joinn was the 2nd independent company to pass NMPA’s (then CFDA) GLP inspections in 2005 and the 1st private CRO in China to pass US FDA GLP inspection. According to F&S, among all domestic drug candidates whose INDs were accepted by China CDE during 2017-19, Joinn provided relevant non-clinical DSA services for over 15% of all chemicals and 45% of all biologics candidates. Given the high entry barriers of DSA sector, such as GLP qualifications and limited supply of research models, as well as fast growing demand in innovative drug R&D, Joinn will maintain its industry leading position, in our view.
　　Explore opportunities beyond DSA sector. Leveraging its extensive experiences in　non-clinical studies and large customer base, Joinn has expanded its business to early-stage clinical trial services which share certain common bioanalytical methods and practices with pre-clinical studies. Joinn acquired US-based Biomere in 2019 to enhance the drug discovery capability as well as to expand business network in the US. Through investing a minority stake in Joinn Bio, a biologics CDMO company, Joinn leverages its rich experiences in biologics DSA to explore the business opportunities in the rapidly growing biologics CDMO market.
　　Charles River Lab (CRL) shows Joinn a sustainable development path. CRL is　the largest global pre-clinical CRO service provider with a long development history.We summarized the key success factors of CRL, which could provide as a good reference for Joinn, including 1) service business as long-term focus; 2) acquisition as a key growth driver; and 3) overseas expansion; and 4) strengthening discovery capabilities.
　　Strong growth momentum. We forecast Joinn’s revenue to grow by 45%/40%/37% YoY in 2022E/23E/24E, representing a 40% CAGR in 2022-24E, driven by 1) rising domestic demand for high quality DSA services, 2) continuous growth from overseas market, and 3) synergies between non-clinical and clinical business. We expect net income to increase by 35%/32%/31% YoY in 2022E/23E/24E. We derive our target price of HK$107.65 based on a 9-year DCF valuation (WACC: 10.9%, terminal growth rate: 3.0%). Catalysts: fast new order growths; new capacities commencing operations.