Incident: The company released its 2023 semi-annual report. 23H1 achieved revenue of 570 million yuan (-64.7% YoY), net non-attributable profit of -120 million yuan (-120.5%); 23Q2 achieved revenue of 270 million yuan (-58.3% YoY), realized net profit of 0.3 million yuan (-116.7% YoY), and achieved net profit of non-attributable net profit of -0.4 billion yuan (-126.3% YoY).

Business revenue is under pressure in the short term, and the company's regular business development is improving: Judging from short-term performance, 23H1's operating income, net profit attributable to parents, and net profit not attributable to income have all declined, mainly due to 1) changes in domestic and foreign public health prevention and control policies leading to a sharp decline in demand for COVID-19 detection reagents and related raw materials in the downstream market; 2) The amount of asset impairment losses increased compared to the same period; 3) The amount of fixed expenses such as labor, depreciation, amortization, and rent in expenses during the period remained relatively high in the short term. 2023H1's sales expenses, management expenses, and R&D expenses were 230 million yuan (+12.0% year on year), 120 million yuan (+3.4% year on year), and 170 million yuan (+9.5% year on year), respectively.

23H1 has improved and strengthened human efficiency in R&D and sales. It continues to improve product capabilities in conventional business areas such as basic research reagents, high-throughput gene sequencing reagents, and new drug development reagents. The customer service experience and customer stickiness have further improved, and related routine business has maintained steady growth.

The company's R&D investment continues to increase, and the business sector is gradually being enriched: 2023H1, the company's R&D expenses are 170 million yuan, an increase of 9.5%, and the number of R&D personnel is 687 (accounting for 23.7%). The company has obtained a total of 176 intellectual property authorizations, of which 59 are invention patents. By business area, (1) life science field: 23H1 continues to develop and deepen business around the three segments of basic research reagents, sequencing reagents, and diagnostic raw material reagents. In total, it has completed more than 40 key technology developments, and the company's life science division has developed 160 new products; (2) biomedicine field: 23H1. The company mainly focuses on establishing vaccine evaluation reagents and innovative methodologies, focusing mainly on RSV (respiratory syncytial virus) and HPV (human papillomavirus) pipelines, and has successfully carried out the development of test agents for the relative efficacy of vaccines in vitro. products Launched, further breakthroughs have been made in the mRNA process platform; (3) In vitro diagnosis field: 23H1 The company's in vitro diagnosis division has obtained 2 new medical device registration certificates for category 3 medical devices and 2 additional medical device registration certificates. Among them, Mycoplasma pneumoniae IgM antibody test kit (quantum dot fluorescence immunochromatography) and Mycoplasma pneumoniae IgG antibody test kit (quantum dot fluorescence immunochromatography) were approved for three types of medical device registration certificates in China in April and May 2023, respectively.

Equity incentives are tied to core high-quality employees, and management confidence is sufficient: The company issued an equity incentive plan. For the first time, it plans to grant 7.841 million shares and reserve 659,000 shares. For the first time, it is proposed to award 781 incentives to 781 people (accounting for 19.1%), all middle managers and core key employees working for the company. Among them, Mr. Sun Wei (Sun Wei), a key foreign employee with core high-quality technical skills, will continue to empower the company's subsequent R&D. The restricted stock assessment year for the first time was the three fiscal years 2023-2025, with annual performance assessment and attribution. Among them, the revenue for 2023 is not less than 1,250 billion yuan, the cumulative revenue for 2023-2024 is not less than 2.8 billion yuan, the cumulative revenue for 2023-2025 is not less than 4.75 billion yuan, and the revenue growth rate for 23 to 2025 is not less than 4.75 billion yuan. According to the calculation of 1.25 billion yuan in 23, the revenue growth rate for 23-25 is about 25%. Considering the incentive effect of equity, the company's long-term development confidence is sufficient. The company's performance has been positive for a long time.

Profit forecasts and investment recommendations. Based on the company's semi-annual performance report and considering the company's equity incentive plan, we adjusted the company's performance. We expect net profit to be 0.06/2.2/40 billion yuan respectively in 23-25, corresponding to 50/27 times the PE valuation in 24-25. Considering that the company is a leader in domestic molecular reagents, the downstream application field continues to expand, and maintains a “buy” rating.

Risk warning: risk of increased market competition; risk of product sales falling short of expectations; risk of policies exceeding expectations.