The company's neonatal cell storage business is growing steadily, and adult cell storage opens room for growth.

The company has the qualification of operating public umbilical cord blood bank and three exclusive national licenses for stem cells, which has a unique competitive advantage in the field of cell storage. The company's cell storage business increased from 356 million in 2015 to 456 million in 2019, with a four-year compound growth rate of 6.44%. Due to the epidemic, the company's cell storage business income dropped to 396 million in 2020. In the first half of 2021, the revenue from cell testing preparation and storage business was 223 million yuan, an increase of 16.12% over the same period last year. The company's storage business is mainly based on infant umbilical cord hematopoietic stem cells, and gradually extends the development of adult cell storage. At present, the penetration rate of stem cell storage in China is much lower than that in some developed countries and regions. We believe that with the promotion of market education and the improvement of residents' consumption level, the penetration rate is expected to increase gradually. It is expected that the company's neonatal stem cell storage business is expected to grow steadily by 5-10% in the next 3-5 years. In 2021, the company built an adult immune cell storage center in Shanghai. Through cooperation with medical institutions, insurance companies and high-end private banking centers, it is expected that adult cell storage business is expected to increase rapidly in 2022, and the unit price of superimposed adult cell storage is high. We expect adult cell storage to account for 50% of the company's cell storage business income in 1-2 years and surpass newborn cell storage in 3-5 years.

Accurate diagnosis plate scientific research reagents and diagnosis upstream raw materials are in high prosperity, and there are broad prospects for pathological and gene detection and storage.

The company's accurate diagnosis plate covers "pathology + biochemistry + immunity + molecules" all categories of diagnosis upstream raw materials or products, scientific research reagents and gene testing services, and the accurate diagnosis plate accounts for more than 65% of the revenue. Among them, the production of testing reagents, scientific research reagents, genetic testing and storage accounted for 50%, 11% and 4% of the company's revenue in 2020, respectively. The revenue of the testing reagent production business reached 378 million yuan in the first half of 2021, an increase of 21.53% over the same period last year; the revenue of scientific research reagents reached 149 million yuan in 2020 and 90 million yuan in the first half of 2021, an increase of 29.6% over the same period last year. Revenue from gene testing and storage in the first half of 2021 was 27 million yuan, an increase of 2.48 percent over the same period last year. Its subsidiaries play a synergistic role in the accurate diagnosis sector: AoRui Dongyuan has scientific research reagents including genes, proteins, antibodies and in vitro diagnostic raw materials and reagents; Zhongyuan Jinqiao is mainly engaged in pathological diagnosis reagents; Zhongyuan Weikang's tumor targeted drug gene testing products; Shanghai Zhicheng is mainly engaged in biochemical diagnosis business.

The company continues its research and development in the cell therapy section, mainly focusing on stem cell therapy and immune cell therapy. The era of hundreds of billions of cell therapy market under the catalysis of policy is coming. The company actively expands its cooperation with hospitals, promotes the integration of industry, university, research and application of advanced medical technology, cooperates with academicians' scientific research team, and makes a comprehensive layout in stem cell project filing and drug declaration, the company participates in the application and completion of 6 stem cell clinical research record projects of the National Health Commission, and continues to make efforts in the treatment of liver, kidney and other important organ diseases. Vcanbio's stem cells have been tested by the Central people's Procuratorate and have become the only enterprise in China that can provide clinical stem cell preparations in the field of cell therapy because of their safety, stable process and controllable quality. The application for clinical registration of a new drug for the treatment of lupus erythematosus by Beike Biological Stem cells, a holding company, has been formally accepted; positive progress has been made in the clinical cooperative research of mesenchymal stem cells in the treatment of COVID-19 's critically ill patients; and the "human dental pulp mesenchymal stem cell injection" of Sanli Heze Bio, a holding company, is the first mesenchymal stem cell treatment drug for chronic periodontitis in China. The joint-source biological CAR-T product "CNCT19 cell injection" of the participating company has entered the clinical stage in the treatment of acute lymphoblastic leukemia and lymphoma.

Investment rating and valuation: the company's 2021-2023 net profit is expected to be 211 million, 296 million and 399 million respectively, and the current market capitalization corresponds to the 21-23 PE valuation of 49 times, 35 times, 26 times, for the first time covering the "highly recommended" investment rating.

Risk tips: cell detection preparation and storage promotion and landing risk is lower than expected; clinical progress is not as expected risk; medical malpractice risk; policy landing uncertainty.