1Q21 earnings largely in line. Joinn reported 1Q22 revenue/ attributable net income of RMB271mn/ RMB125mn, up 35%/ 34% YoY, accounting for 12%/ 17% of our full-year estimates. First quarter is usually the low season for Joinn.Gross profit margin was flattish at 51.7% compared with 1Q21, despite the continuous price hikes of experiment animal models. In 1Q22, Joinn signed RMB1bn new contracts, up by c.65% YoY, and total orders at hand amounted to RMB3.6bn. Management is confident to deliver higher revenue growth than the industry average of 36-38%. Meanwhile, Joinn announced to acquire 100% stake of two China-based leading suppliers of high-quality experiment models, including Yunnan Yinmore (云南英茂生物科技) with a cash consideration of RMB830mn and Guangxin Weimei ( 广 西 玮 美 生 物 科 技 ) with a cash consideration of RMB975mn. Our calculation shows that Yunnan Yinmore is valued at 26x FY21 P/E and Guangxin Weimei is valued at 19x FY21 PE, indicating reasonable acquisition costs.
　　Acquisitions of experiment model suppliers to strengthen order　fulfillment capabilities. Both Yinmore and Weimei are leading China-based experiment model suppliers which exclusively supplied research models to leading US-based CROs before the COVID-19 pandemic, indicating the high- quality of their products. Driven by the growing demand in biological drug R&D in China, the supply of research models has been in shortage and the prices of experiment models, especially non-human primates, has experienced significant rise. With a total livestock of more than 20,000 non-human primates, the acquisitions of Yinmore and Weimei will significantly strengthen Joinn’s fulfillment capabilities for drug safety assessment (DSA) services in China market, in our view. More importantly, through the acquisitions, Joinn vertically expands its value chain to the upstream experiment model supply, creating significant synergies with its DSA business such as secured model supply, better cost control, improving efficiency in experiment conduction, etc.
　　Expanding facilities to meet the rapidly-growing demand. Joinn’s growth　of new orders has outpaced that of revenue since 2019, which adds pressures to order fulfillment. To meet the rising demand, Joinn is actively expanding its facilities in China. Its 20,000sq.m. animal rooms in Suzhou will be ready for use in 2H22 and the phase 1 facilities in Guangzhou (18,000sq.m.) and Chongqing (20,000sq.m.) may commence operation by 2024.
　　Maintain BUY. We revise our TP from HK$107.65 to HK$107.38 based on a 9-year DCF valuation (WACC: 10.9%, terminal growth rate: 3.0%).