Preannounced 1H22 net profit up 121.8-161.8% YoY
JOINN Laboratories (China) preannounced its 1H22 results: Attributable net profit surged 121.8-161.8% YoY to Rmb341mn-402mn, and recurring net profit soared 144.3-191.9% YoY to Rmb316mn-378mn. The preannounced results beat our expectation due to the robust growth of the firm’s main business. Interest income, the acquisition and consolidation of laboratory model firms, enhanced fair value of biological assets also contributed to the firm's earnings growth.
Trends to watch
Ample orders on hand; visible earnings growth ahead. In 1Q22, the firm signed more than Rmb1bn worth of new orders, up over 65% YoY. As of end-1Q22, the firm’s order value on hand exceeded Rmb3.6bn. In 2021, JOINN received more than Rmb2.8bn worth of orders. The firm’s China-based subsidiaries received more than Rmb2.55bn worth of orders (up 65% YoY), its overseas subsidiary Biomere received about Rmb280mn worth of orders (up 75% YoY), and its China-based subsidiaries received about Rmb160mn worth of overseas orders (up 100% YoY), maintaining rapid growth. We expect the firm’s 2Q22 order growth to extend the strong momentum seen in 1Q22 and its earnings to grow rapidly. In 1Q22, the unrealized gains from fair value change of biological assets were Rmb34.49mn and the realized gains were Rmb19.11mn, vs. Rmb1.26mn and Rmb0 in 1Q21. The interest income generated from proceeds was Rmb35.98mn, and the exchange loss from proceeds raised from share offerings was Rmb277 (vs. a gain of Rmb68.1mn in 1Q21). Excluding the above impacts, the firm’s recurring net profit increased 253.40% YoY.
Acquisition of two laboratory model companies completed. The main businesses of these two companies include breeding, feeding and selling of laboratory models. 1) Yunnan Yinmore Bio-Tech Co., Ltd.: JOINN Laboratories (China) has acquired 100% equity of Yunnan Yinmore Bio-Tech for Rmb830mn. The target company had revenue of about Rmb58.01mn, net profit of around Rmb32.02mn, and inventories and biological assets appraisal value appreciation of Rmb670mn in 2021. The acquisition was completed on June 7, 2022. 2) Guangxi Weimei Bio-tech Co., Ltd.: JOINN Laboratories (China) acquired 100% equity of Guangxi Weimei Bio-tech for Rmb975mn. The target company had revenue of about Rmb80.47mn, net profit of around Rmb52.25mn, and inventories appraisal value appreciation of Rmb684mn in 2021. The acquisition was completed on June 16, 2022.
Production capacity expansion to support business scale-up. As at the end of 2021, the firm’s 7,500-sqm breeding facility had been completed and put into use, and the firm had completed equipment installation and gained certification for a 1,800-sqm laboratory (P2). The firm plans to carry out the Phase II expansion project of JOINN Laboratories (Suzhou), building new facilities (mainly breeding facilities) with designed GFA of about 20,000 sqm and putting these facilities into use in 2H22. In addition, JOINN has partnered with Jiangsu Sinotau to build a leading radiopharmaceutical evaluation center in China, and the construction of JOINN’s drug safety assessment center in Guangzhou is progressing smoothly. Moreover, JOINN added about 6,000 sqm of experimental facilities in California in 2021.
Financials and valuation
The firm’s H-shares are trading at 25.1x 2023e P/E and A-shares at 47.9x 2023e P/E. Given the fast-growing demand for the firm’s main business and the increased value of biological assets, we raise our 2022 and 2023 net profit forecasts 8.2% and 7.6% to Rmb798mn and Rmb1.03bn. For H-shares, we maintain OUTPERFORM and lift our TP 8.4% to HK$103.00 (32.6x 2023e P/E), offering 30.2% upside. For A-shares, we maintain OUTPERFORM and lift our TP 10.2% to Rmb162.00 (59.8x 2023e P/E), offering 24.7% upside.
Risks
Unexpected changes in fair value of biological assets; fluctuating order growth; disappointing R&D of new drugs; volatile foreign exchange rates.