In 2021, the company's core products drive steady growth, in line with expectations. Product research and development has progressed steadily, and sales costs have increased significantly. The synergy effect of M & An is worth looking forward to, and the self-construction project will be carried out in an orderly manner. The layout of technology, channels and pipelines continues to advance, and we are optimistic about the company's multi-level strategic expansion for a long time.

The core products are expanded steadily, and the revenue / gross profit increases synchronously. In 2021, the company realized operating income of 107 million yuan, an increase of 32.3% over the same period last year, a gross profit of 51 million yuan, an increase of 84.6% over the same period last year, and a comprehensive gross profit margin of 47.7%, an increase of 13.5PCTs over the same period last year. The net loss was 144 million yuan, compared with 877 million yuan in the same period last year. Realize EPS (basic and diluted)-0.53 yuan. The company's core products drive steady growth in performance, in line with expectations. During the reporting period, the company's core product PGT-A revenue was 45.84 million yuan (year-on-year + 41%), accounting for more than 50% of the sales contribution of 23.73 million (+ 99.2% year-on-year), mainly due to the cost reduction brought about by the large-scale production of PGT-A kits and the improvement of multi-pipeline efficiency.

Product R & D pipeline continues to advance, sales efforts continue to increase. The company invested 73.71 million yuan in R & D in 2021, an increase of 114% over the same period last year, of which R & D expenditure increased by 16.47 million yuan, clinical trial expenditure increased by 12.15 million yuan, and expenditure on consumables and reagents increased by 9.55 million yuan. In terms of reagents, the company's PGT-M products have entered the clinical trial group stage, and the company expects to complete the clinical trials in 2022; PGT-SR products have been patented and supported by the major national special projects of the "14th five-year Plan", and have entered the priority approval channel, and the company expects to obtain the registration certificate in 2024.

At the same time, the company's CNV kit and WES kit have also been upgraded and optimized. In terms of equipment, the intelligent liquid nitrogen tank has submitted the registration data for approval; the cryogenic storage instrument has been developed, and the company expects to obtain the registration certificate in 2023; the gene sequencer is already in the process of registration inspection. The company's sales expenses in 2021 were 62.62 million yuan, an increase of 276 percent over the same period last year, of which labor costs increased by 17.51 million yuan, service fees increased by 18.82 million yuan, and corresponding expenses for market seminars, academic seminars and public welfare activities increased by 5.62 million yuan. The maintenance of R & D momentum can stabilize the company's technical advantages and enhance the product pipeline layout; the increase of sales efforts will help the company's core products to expand quickly and consolidate the leading advantage.

Mergers and acquisitions are expected to produce significant synergy, and self-construction projects will be carried out in an orderly manner. The company acquired a 51% stake in Xingbo Biological in November 2021. Xingbo Biology is the first company in China to carry out GFI testing (written in the Chinese andrology guide), and has won the second prize of national scientific and technological progress. Its R & D strength and layout coverage in the andrology field have a solid foundation. Its andrology flow cytometry covers 200 reproductive centers. Considering that there are 48 localized laboratories and 55 assisted reproductive centers (with a head market share of 70%), the combination of the two sides is expected to produce significant synergy, strengthen the advantages of technology and channels, and build a complete market system around male fertility. Meanwhile, construction of the company's production building began last year and is expected to be capped in September this year. After the completion of the building, the industrialization capacity of the company will be greatly enhanced, and it is expected to build an advanced manufacturing base with the production capacity of upstream reagents, consumables and instruments.

Strengthen the technology, channel advantages and the whole pipeline layout, long-term optimistic about the company's multi-level strategic expansion. We are optimistic about the medium-and long-term growth logic of the company: ① can stabilize and expand the company's first-mover advantage in the upper reaches of assisted reproduction through mergers and acquisitions and continuous R & D investment; ② rapidly strengthens the construction of sales channels, which is expected to help the company quickly achieve core product volume, increase company performance and turn losses into profits. ③ 's whole pipeline development strategy can make better use of policy dividends, obtain good resources through mergers and acquisitions, and produce synergy between diagnostic reagents and instruments and equipment; ④ expects the company to continue to sign new contracts for assisted reproductive centers, expand its head market share, sink the sales network and seize the fast-growing dividend of the industry under the catalysis of policies.

Risk factors: company product research and development and registration risk; COVID-19 epidemic local repeated risk; health insurance policy change risk.

Investment suggestion: the company is the leading industry in the upstream of assisted reproduction in China, with competition barriers in the field of PGT products, strategic layout of the whole pipeline and long-term growth potential. Taking into account the impact of the local epidemic on the admission of PGT-A products and the strong investment in product sales expenses, the revenue forecast for 2023-2023 is adjusted to 225 million yuan (the original forecast is 399 million yuan), and the revenue forecast for 2024 is increased by 475 million yuan. Adjust the 2022-2023 net profit forecast to-0.60 pesque 0.22 million yuan (the original forecast is 0.16 trillion 0.57 million yuan) and increase the 2024 net profit forecast by 45 million yuan. Considering that the product volume cycle under the influence of the local epidemic may be extended slightly to 18-20% revenue growth forecast in 2025-2031, using DCF valuation pricing, adjust the company's target price to HK $12.00 and maintain the "buy" rating.