1H22 earnings beat. Joinn reported 1H22 revenue/ attributable net income of RMB777mn/ RMB371mn, up 45%/ 141% YoY, accounting for 35%/ 50% of our full-year estimates. Revenue growth accelerated to 52% YoY in 2Q22 from 35% YoY in 1Q22. Gross profit margin in 1H22 was 1.6ppts lower than 1H21 but was 1.1ppts higher than 2H21, indicating efficient cost management despite the continuous price hikes of experiment animal models and strong economies of scale. In 1H22, Joinn signed more than RMB2bn new contracts, up c.50% YoY, leading to RMB4.1bn total orders at hand. Joinn aims to reach 40% YoY growth in new orders in 2022. Overseas business provided upside surprise. Biomere, Joinn’s overseas subsidiary, won c. RMB200mn new contracts in 1H22, up c.30% YoY, while Joinn’s domestic BD team won c.RMB150mn new contracts from foreign clients, up c.100% YoY. Thanks to the continuous price hikes of non-human primates and the acquisition of two suppliers of experiment models, Joinn booked RMB131mn fair gains from biological assets in 1H22, accounting for 30% of the pre-tax profit (vs 22% in 1H21). Joinn plans to roll out a new round of share-based compensation scheme, with revenue CAGR target set at no lower than 35% during 2021-24E.
Continue to enhance leading position in China’s drug safety assessment (DSA) market. To enhance the contract fulfilment capability, Joinn completed the acquisition of two China-based leading suppliers of high-quality experiment models in 1H22, adding a total livestock of more than 20,000 non-human primates. With years of experiences in DSA sector, Joinn has now established itself as a domestic leader in new modalities, such as ADC and CGT areas. According to the Company, Joinn participated in more than 50% of CGT projects and 30% of ADC projects that submitted IND applications to CDE in 1H22 and the size of CGT-related new orders had doubled to ~RMB250mn in 1H22. To meet the rising market demand, Joinn expanded its total number of employee by 500 in 7M22, versus the c.600 increase in staff number during full-year 2021.
Actively expanding facilities to meet the rapidly-growing demand. Joinn’s 8,000sq.m facilities in Suzhou has commenced operation in Jan 2022. The 20,000sq.m. animal rooms in Suzhou will be ready for operation in 2H22. The Ph 1 of Guangzhou facilities (18,000sq.m.) may complete construction by end- 2022. Joinn Yichuang, a subsidiary focusing on drug screening, has started the construction of laboratories, which may bring synergies to DSA services.
Maintain BUY. We slightly lifted our TP from HK$76.70 to HK$78.98 based on a 10-year DCF valuation (WACC: 10.9%, terminal growth rate: 3.0%). We forecast revenue to grow 45%/40%/37% YoY and attributable net income to grow 47%/39%/35% YoY in FY22E/23E/24E.