In the first half of 2023, the company's income was 1.489 billion yuan and its net profit was 335 million yuan, which was in line with expectations. The proportion of high gross margin business has increased, and the gross profit margin has rebounded. COVID-19 's high base business has been digested, and conventional business has grown well. Overseas markets have made gains again, and internationalization has opened the ceiling of growth. We maintain the forecast of the company's homing net profit from 2023 to 2025 of 610 million / 769 million / 1.032 billion yuan, corresponding to 1.37 EPS 1.73 Compact 2.32 yuan, and the current price corresponding to PE 19-15-11 times. Maintain the 2023 target price of 38 yuan and maintain the "buy" rating.

2023H1's performance was in line with expectations and gross profit margin rebounded. According to the company announcement, the total operating income / return net profit / non-return net profit of 2023H1 is 1.489 billion / 335 million / 295 million yuan respectively, which is-63.1% and 74.0% compared with the same period last year. Mainly due to the company's high income from COVID-19 products in the same period last year, the global COVID-19 epidemic tends to be normalized in 2023, and the demand for corresponding products has decreased significantly. Among them, the operating income / return net profit / non-return net profit of 23Q2 is 657 million / 131 million / 100 million yuan respectively, which is-53.4% /-52.32% and 57.94% respectively compared with the same period last year. In the same period last year, the epidemic product sales brought a high base, 2023H1 company performance decline compared with the same period last year, excluding COVID-19 products, the company performance steady growth, in line with expectations. The sales / management / R & D / financial expense rate of the company in 2023H1 was 21.19%, 19.95%, 12.81%, 0.90%, respectively, compared with the same period last year. The sales expense rate, management expense rate, and R & D expense rate all increased significantly, mainly due to the surge in COVID-19 's business income in the same period last year, which was relatively low compared with previous years, and returned to the normal level in the first half of 2023. 2023H1's gross profit margin is 63.55%, year-on-year + 6.99pcts, mainly due to the rapid increase in the proportion of regular business with high gross margin.

COVID-19 's high base business has been digested, and conventional business has grown well. According to the company announcement, according to the business segment: 1) Infectious disease testing: 2023H1 achieved revenue of 428 million yuan,-86.67% compared with the same period last year, mainly due to the reduction of COVID-19 's business income from 3 billion yuan last year to less than 100 million yuan (accounting for about 5%). In addition, respiratory infectious disease testing, digestive tract infectious disease testing, blood infectious disease detection and other routine business significantly recovered. 2) chronic disease management and testing: 2023H1 achieved an income of 718 million yuan, + 40.30% compared with the same period last year, mainly benefiting from the diagnosis, treatment and repair of the hospital market, and the number of terminal outpatients and test samples in the hospital recovered and increased significantly compared with the same period last year. 3) Drug (drug abuse) testing: 2023H1 achieved revenue of 164 million yuan, + 18.11% compared with the same period last year, mainly because the company continued to dig deep into the US drug inspection market, actively introduced new products, broadened the application scene, and the incremental space was constantly opened, and the scale of drug inspection business income was further expanded. 4) eugenics testing: 2023H1 achieved 134 million yuan in revenue, + 5.50% compared with the same period last year, mainly due to the company's continuous strengthening of e-commerce platform channels in China, the development of OTC chain market overseas, the optimization of product structure, the continuous improvement of the company's superior business market share, and the consolidation of the brand's market position. We believe that the company's regular business growth is good, COVID-19 business high base digestion will enter a period of steady growth.

Overseas markets have made gains again, and internationalization has opened the ceiling of growth. According to the company announcement, the company successfully landed its training center at the University of Nairobi in Kenya in the first half of 2023, which will be used as a starting point to radiate East Africa, empower the after-sales system for local employees and agents, and expand brand influence; in addition, the company signed a strategic cooperation agreement with Indonesian state-owned pharmaceutical company Kimia Farma (KAEF) to improve the accessibility of medical and health services to the local people. We believe that the company enjoys a huge first-mover advantage because of its early overseas layout, wide channels and complete pipelines. The layout progress in Asia, Africa and Latin America shows the company's forward-looking strategic vision. With the continuous development of the company's product power and channel power, the overseas market is expected to become the core driving force of the company's performance growth in the future, and will continue to open the ceiling of the company's growth.

Risk factors: the progress of R & D and product registration is lower than expected; sales volume is less than expected; the risk of market competition intensifies; the risk of policy change exceeding expectations; the risk of price reduction leading to lower-than-expected gross profit margin; the risk of exchange rate fluctuations.

Profit forecast, valuation and rating: the company is the leader in the field of POCT in China, deeply ploughing the industry for 30 years, and the POCT industry enjoys technological progress + the help of the times, with strong certainty of industry growth. We maintain the forecast of the company's homing net profit from 2023 to 2025 of 610 million / 769 million / 1.032 billion yuan, corresponding to 1.37 EPS 1.73 Compact 2.32 yuan, and the current price corresponding to PE 19-15-11 times. On August 17, 2023, the average PE of comparable companies Mindray Medical, New Industries, Antu Biology (predicted by CITIC Research Department) and Pumen Technology (Wind consensus) was 25x in 2023, which was significantly lower than the annual average, mainly due to fluctuations caused by tighter regulatory policies in the medical industry. Taking into account: 1) the company's COVID-19 business has been digested from a high base, and the conventional business has grown well; 2) the company has made gains in overseas markets and internationalization has opened the growth ceiling; 3) according to the company announcement, the company's overseas business accounts for more than 40%. And the regulatory policy risk of the company's main business and dealer consignment model is low. To sum up, we maintain the company's 2023 27xPE, corresponding to the 2023 target price of 38 yuan, to maintain the "buy" rating.