Incident: The company released its 2022 annual report and the first quarter report of 2023. The company achieved revenue of 3.608 billion yuan (-9.35%) for the full year of 2022, net profit of 708 million yuan (-25.99%), net profit of 709 million yuan (-25.14%), EPS of 1.16 yuan, and operating cash flow of 843 million yuan (-47.84%). The company achieved operating income of 676 million yuan (-26.85%), net profit of 117 million yuan (-42.10%), net profit of 120 million yuan (-40.10%) after deducting non-net profit of 120 million yuan (-40.10%), and operating cash flow of 167 million yuan (+39.08%) in the first quarter of 2023.
Conventional self-produced products grew steadily, and the agency business was rapidly divested. The company's revenue declined in 2022 and 23Q1, mainly due to the divestment of the agency business. The decline in profit was more due to the year-on-year decline in profits from COVID-19 nucleic acid products, and the company's main business maintained steady and rapid growth. In 2022, the company's self-produced products contributed 64.08% of revenue and 89% of profit. Self-produced conventional products achieved revenue of 1,721 billion yuan (+8.72%). The large-scale instrument market sold 3014 units (pieces) throughout the year, including 1,070 chemiluminescence instruments and 992 blood instruments. The high installation of instruments led to continued growth in reagent sales. In 2022, the company's conventional reagent products sold 803 million yuan (+25.05%) of immune reagents, 563 million yuan (-8.66%) of biochemical reagents, and 138 million yuan (+50.14%) of clinical reagent sales. Overall growth remained stable. In 2022, the company's agency product revenue was 1,256 billion yuan (-23.16%), accounting for 34.81% (-6.25pct), and the agency business achieved accelerated divestment. The company's independent product revenue CAGR was 23.89% in the past three years, accounting for an increase of 64.08% from 37.73% in 2019. We believe that future sales growth and structural improvement of the company will continue to drive the company's performance growth.
Accelerate the promotion of direct sales and distribution, and the construction of domestic and foreign channels is getting better and better. The company adopts two sales models of direct sales and distribution in China, sells directly to major customers such as level-III and some second-tier hospitals, and expands primary medical institutions through dealers. As of 2022, the company's independent product users have covered 8,000+ hospitals at all levels, with coverage rates of 24% and 57% of level-II and tertiary hospitals respectively. In overseas markets, the company has mainly adopted local dealer product dealer registration, regional sales and service methods. In recent years, the company has focused on planning overseas layout and continuously increasing market development efforts. Currently, it has cooperated with more than 490 companies, covering 117 countries/regions.
Technological innovation leads the overall product layout, and the assembly line is the first to consolidate its competitive position. Based on the R&D innovation platform for global resource allocation, the company has formed two major R&D centers for reagents and instruments, covering biochemical, immunological, clinical testing, molecular, pathology, rapid testing, IVD raw materials and other product platforms, and is committed to achieving the “four modernization” goals: ① all platforms have product sales; ② key platform product series/systematization; ③ automation of key platforms; ④ autonomous stable supply of key raw materials. The company's R&D investment continues to increase. In 2022, R&D expenses were 273 million yuan (+31.82%), the R&D cost rate was 9.85% (+2.28pct), and 464 independent products have been certified (124 biochemicals+193 immunization+147 others), which can meet 80% of the project needs of medical institutions at all levels. At present, the company's biochemical, immunological and blood products have been integrated into assembly lines. It is one of the few IVD companies in China that can provide laboratory automation solutions. In 2022, 16 free-of-charge production lines and 141 blood assembly lines were installed. We believe that having automated assembly line solutions is a reflection of the core technical strength of chemiluminescent manufacturers and helps enterprises consolidate their competitive position in the industry. With the formation of the company's many assembly line solutions, it is expected that assembly line installation in 2023 will accelerate and gradually contribute to the company's performance growth.
Investment advice: The company is a leading IVD enterprise with leading technical strength and comprehensive product layout. The introduction of high-speed machines and assembly line solutions has helped enhance the competitive strength of chemiluminescence and provided the company with long-term growth impetus. We expect the company's net profit to the mother in 2023-2025 to be 618 million yuan, 748 million yuan and 900 million yuan respectively, compared to -12.70%/+21.01%/+20.38%, and EPS is 1.01 yuan, 1.22 yuan, and 1.47 yuan respectively. The current stock price corresponds to PE 16/13/11 times that of 2023-2025, giving a “recommended” rating for the first time.
Risk warning: the risk that chemiluminescence reagent collection price reduction exceeds expectations, the risk that assembly line installation progress falls short of expectations, and the risk that overseas expansion falls short of expectations.