Incident: On July 12, the company released its 2023 semi-annual results forecast. It expects to achieve net profit of 236-252 million yuan in the first half of 2023, an increase of 45%-55% over the previous year. It is expected to achieve deduction of non-net profit of 234-250 million yuan in the first half of 2023, an increase of 50.06% -60.52% over the previous year. Of these, the impact of non-recurring profit and loss on net profit is about 2.3334 million yuan, mainly government subsidies.

Due to the superimposed base effect of the recovery in diagnosis and treatment, there was a high increase in results in the second quarter alone. According to performance forecasts and company historical data, the company is expected to achieve net profit of 1.25-141 million yuan in the second quarter of 2023, up about 93%-118% year on year and 13-27% month on month; it is estimated that the company deducts non-net profit of 14%-141 million yuan in the second quarter of 2023, up about 110%-138% year on year, up about 14%-29% month-on-month. The company achieved explosive growth in single-quarter results, mainly due to the rapid recovery of various business lines such as biochemistry and pathology brought about by improved demand for downstream diagnosis and treatment, as well as a low base for the same period in 2022. According to public data from the National Health and Health Commission and others, the number of health care visits and discharges across the country has all achieved a good recovery since 2023. We expect 2023H2 to continue the previous good trend, and the company's performance is expected to maintain rapid growth throughout the year.

Rapid breakthroughs in high-potential businesses such as luminescence and hemagglutination protect medium- to long-term performance growth. The company exhibited a new product, the chemiluminescence system, at the CACLP exhibition in Nanchang in May 2023. We expect 120-speed and 200-speed equipment and supporting reagents to be approved in the short term, and subsequent luminescence products are expected to gradually contribute to the company's performance. At the same time, the company's blood coagulation line GW series began to be installed in hospitals above level 3, and the subsidiary Mei Xinyue Coagulation Six won the overall bid in the collection of coagulation clinical test reagents in Anhui Province. It is expected that the future will accelerate equipment performance and test import substitution to provide deterministic medium- to long-term growth for the company.

The largest shareholder continues to increase its holdings, accelerating the transformation of platform-based enterprises. As of March 31, 2023, Sinopharm Investment, the company's largest shareholding ratio reached 16.62%. Compared with a holdings increase of nearly 1% at the end of 2022, the company continues to strengthen strategic collaboration with the majority shareholder Sinopharm and develop close cooperation in various areas such as channel sales, product research and development, investment and mergers and acquisitions. We expect the company to further deepen strategic cooperation with Sinopharm in the second half of 2023 and accelerate the transformation of platform-based in vitro diagnostic enterprises in the future.

Profit forecast and investment suggestions: We expect the company's biochemical, pathological and other businesses to gradually recover in 2023. We expect the company's revenue from 2023-2025 to 19.19, 23.06, 2,780 billion yuan, up 27%, 20%, and 21% year-on-year. It is estimated that the net profit of the return mother in 2023-2025 will be 5.25, 6.72, and 857 million yuan, up 35%, 28%, and 27% year-on-year, corresponding to EPS of 0.89, 1.14, and 1.46. The company's current stock price corresponds to about 25 times PE in 2023. Considering the upward trend in the company's biochemical and blood clotting business, Pathology Track continues to be booming and maintains a “buy” rating.

Risk warning: Overseas cooperation falls short of expectations, new product marketing falls short of expectations, and the public information used in research reports may be at risk of information being delayed or not updated in a timely manner.