Key points of investment

Incident: The company released the third quarter report of 2022. In Q1-3 2022, the company achieved operating income of 215 million yuan (+13.55% year-on-year); achieved net profit of 7.7858 million yuan (-79.90% compared to the same period last year); and achieved net profit of -186.076 million yuan (32.6953 million yuan in the same period last year).

Comment: In Q3 2022, the company's revenue improved month-on-month, and the year-on-year growth rate returned to 20% + in a single quarter. Profits were still greatly affected by upfront investment. Short-term pressure was placed on the cost side. New base leasing and other factors plus equity incentives affected management expenses. Factors such as new model verification and humanized model development affected R&D expenses. It is expected that the company will gradually show a scale effect as revenue continues to improve in the future.

Profit prediction and valuation: The company focuses on CRO services such as R&D, sales and related pharmacological phenotypes of genetically modified animal models. Currently, customer resources are abundant, sales models are mature, and a good market reputation has been formed. It is expected that the company's various businesses are expected to achieve relatively rapid growth. Considering the short-term impact, we have adjusted our profit forecasts. We expect the company's EPS for 2022-2024 to be 0.27 yuan, 0.84 yuan, and 1.44 yuan, corresponding to October 31, 2022, PE is 178.2X, 58.4X, 34.1X, maintained respectively “Prudently increase” ratings.

Risk warning: business operations and progress falling short of expectations, risk of technical iteration, etc.