2Q23 performance was under pressure for a short time, and the second half of 2023 may reach an inflection point

1H23's revenue/net profit attributed/net profit deducted from non-net profit of 5.71/-0.81 million yuan, year-on-year ratio -65%/-113%/-121%, of which 2Q23 revenue/net profit attributed/net profit deducted non-net profit of 2.69/-0.30/- 43 million yuan, compared to -58%/-117%/-126%. Performance growth was pressured mainly due to the sharp decline in COVID-19 revenue after epidemic prevention and control optimization, and there are many preparations for depreciation of assets such as COVID-19 related raw materials and products. We expect the company's EPS to be 0.03/0.60/0.85 yuan in 23-25. Considering the rapid growth in the company's regular business revenue, comprehensive business layout, and capital investment in the scientific research market after the epidemic, we are optimistic that regular business demand will be further released in '24, and that new life science business products will gradually be launched and generated revenue, or become new revenue growth points in '24. We gave 51x PE in '24 (comparable to the company's 24-year Wind's unanimous expectation of 41x), corresponding to the target price of 30.85 yuan, maintaining the “buy” rating.

1H23 Expense ratio increased significantly, gross margin decreased slightly year-on-year

1H23's sales/management/R&D/finance expense ratio is 39.77%/20.32%/30.10%/-1.65%, respectively, +27.20/+13.40/+20.41/-1.32pct, respectively. Because COVID-19 related revenue was drastically reduced compared to the same period last year, and the company's sales, management and R&D expenses were relatively rigid, the corresponding cost rate increased significantly; 1H23 gross profit margin was 72.29%, -1.84pct. We estimate that 1H23's regular revenue will increase by about 20% year on year. We expect the company's net profit to reach an inflection point in the second half of 23, and net interest rate is expected to increase significantly starting in '24.

The equity incentive plan is active and has extensive coverage, demonstrating confidence in high-quality performance growth 1) Coverage of employees: no more than 781 people, including middle management and core cadres of the company; 2) Incentive strength: The number of restricted shares granted does not exceed 8.50,000 shares (2.12% of the total share capital), of which 7.841 million shares were granted for the first time (1.96% of the total share capital), and the grant price is 14.14 yuan/share; 3) Initial grant assessment goals: 23 years/23-24 /23-25, respectively, not less than 12.5/ 280/4.75 billion yuan; 4) The first grant was 1655/5617/22.3 million yuan, corresponding to amortization costs for the 23-26 years, and the impact on profits was relatively manageable. We believe that the company's current incentives cover a wide range of incentives and have positive performance growth targets, demonstrating the company's confidence in performance growth, which is conducive to enhancing employee cohesion and team stability, fully mobilizing the enthusiasm of core personnel, and sharing development results.

China's rapidly growing life science service leader maintains a “buy” rating. Based on 1H23 performance, we lowered our COVID-19 revenue expectations and raised our cost rate expectations. We expect net profit of 0.13/2.42/338 million yuan in 23-25 (value of 839/895 million yuan 23-24 years ago), with a year-on-year ratio of -98%/+1721%/+40%. The current stock price corresponds to 23-25 PE of 804x/44x/32x, and the target price was adjusted to 30.85 yuan (previous value 73.83 yuan) to maintain the “buy” rating.

Risk warning: New business growth falls short of expectations; overseas development is low.