Chutian Technology is a leading domestic pharmaceutical equipment manufacturer. In the short term, the COVID-19 epidemic has led to a phased imbalance between supply and demand in the global biopharmaceutical supply chain, and domestic pharmaceutical equipment companies have ushered in the opportunity of "import substitution & overseas layout". The company is full of orders on hand. In the medium and long term, the company adheres to the strategic planning of "one vertical, one horizontal and one platform". On the one hand, through mergers and acquisitions of enterprises with unique business advantages and competitive strength, to supplement the capacity of preparation processing and back-end packaging equipment, on the other hand, actively around the biopharmaceutical upstream consumables industry chain for forward-looking layout, is expected to further open the space for long-term growth. To sum up, we give the company 16 times PE in 2023, corresponding to a target price of 18 yuan, maintaining a "buy" rating.

The company's 2023H1 revenue is growing steadily, and profitability is under short-term pressure under multi-factor disturbance. The company's 2023H1 realized operating income of 3.356 billion yuan, an increase of 16.92% over the same period last year, a net profit of 267 million yuan, a decrease of 10.82%, and a non-return net profit of 268 million yuan, a decrease of 8.81% over the same period last year.

-- We believe that the growth of the company's profit side is slower than that of revenue.

1) the global economic growth is relatively slow, the market competition in the same industry is more fierce, the gross profit margin of customer orders is compressed, and the gross profit margin of products is reduced-- the gross profit margin of 2023H1 is 33.86%, which is down 3.48pcts from the same period last year. Among them, pharmaceutical water equipment and engineering system integration decreased 7.96pcts, bioengineering solutions and stand-alone decreased 6.11pcts, solid preparation solutions and stand-alone decreased 5.18pcts compared with the same period last year. 2) under the influence of asset impairment, the company's 2023H1 credit impairment loss is 14.09 million yuan (2022H1 adds back credit impairment loss of 12.86 million yuan in the same period), and asset impairment loss is 16.08 million yuan (2022H1 asset impairment loss is 12.46 million yuan in the same period). If we exclude this effect, we judge that the profit growth is faster. 3) the company's 2023H1 net interest rate is 7.95%, which is lower than the same period last year. 2.59pcts--2023H1 's sales expense rate / management expense rate / R & D expense rate / financial expense rate has changed respectively compared with the same period last year-1.70/-0.20/-0.83/1.06pcts (total change-1.67pcts).

-- the company's 2023Q2 realized operating income of 1.803 billion yuan, an increase of 20.05% over the same period last year, an increase of 16.07% over the previous year; net profit of 134 million yuan, a decrease of 21.84% over the same period last year, an increase of 0.22%; a net profit of 126 million yuan, a decrease of 19.71% over the same period last year and a decrease of 11.35% over the same period last year; the company's gross profit margin was 33.11%, down 1.61pcts from the same period last year; and the net profit rate was 7.33%, down 1.33pcts from the same period last year. Considering that the company's current contract debt level remains high (2.56 billion yuan at the end of 23H1) and with the tension in the global supply chain, the upward pressure on raw material prices has gradually eased and Romaco performance has recovered, we expect the company's performance to return to solid growth throughout the year.

Adhere to the "one vertical, one horizontal platform", bioengineering front-end competitiveness continues to improve. In terms of business, the income of 2023H1's aseptic preparation solution and stand-alone business was 898 million yuan, up 30.04% from the same period last year; the income from testing and packaging solution and stand-alone business was 760 million yuan, down 25.55% from the same period last year; and the income from solid preparation solution and stand-alone business was 304 million yuan, an increase of 67.53% over the same period last year. The revenue of pharmaceutical water equipment and engineering system integration business was 451 million yuan, an increase of 102.33% over the same period last year; the revenue of EPC engineering design service business was 19 million yuan, an increase of 11.02% over the same period last year; and that of accessories and after-sales service business was 236 million yuan, an increase of 4.56% over the same period last year. The income of bioengineering solutions and stand-alone business is 602 million yuan, which is an increase over the same period last year. 32.81%--2023H1 has basically completed the biological front-end layout of disposable bioreactor, disposable liquid distribution system, ultrafiltration chromatography purification, stainless steel reactor and packing, etc. In April 2023, the company set up Chutian Keyi, which is mainly engaged in the R & D, manufacture, sales and service of high-end centrifuges and other scientific instruments, and further conquers the neck-sticking project in the front-end field of bioengineering. In June 2023, the company established Chutian Jingbang, mainly engaged in purification engineering, EPC project and so on. At the same time, Chutiansi released the three main equipment of automatic cellular drug preparation system-intelligent cell centrifuge system, intelligent cell magnetic sorting system and intelligent cell culture factory, to provide equipment solutions for the whole process from research and development to production of cellular drugs. 2023H1 has set up a biopharmaceutical process research center, which focuses on biopharmaceutical process development and scale-up, process technology consulting services, new product research and development, testing and verification of pharmaceutical equipment, and can undertake the docking R & D platform with pharmaceutical companies and scientific research institutes, aiming to solve key process development and production challenges for global biopharmaceutical customers. From a regional point of view, 2023H1's overseas income was 789 million yuan, up 12.33% from the same period last year, with a gross profit margin of 29.29%, an increase of 0.87 pct over the same period last year; domestic income was 2.567 billion yuan, up 18.95% from the same period last year, and gross profit margin was 35.26%, down 5.11pcts from the same period last year. 2023H1 Romaco's operating income was 653 million yuan, an increase of 22.86% over the same period last year, and its net profit was-43.65 million yuan, an increase of 8.16% over the same period last year.

Excluding Romaco, we estimate that 2023H1's operating income is 2.704 billion yuan, an increase of 15.58% over the same period last year, and net profit is 310 million yuan, down 11.33% from the same period last year.

Research and development and manufacturing of two-wheel drive, planned to increase capital and expand production to help medium-and long-term development. 2023H1 invested 244 million yuan in research and development, an increase of 4.98 percent over the same period last year. The company attaches great importance to the research and development of technology and neck projects, sets up patent project awards, and encourages R & D personnel to actively explore continuous innovation. As of June 30, 2023, the company and its major domestic subsidiaries have 2991 valid patents, 23 valid PCT international patents and 256software copyrights; from January to June 2023, 98 new invention patent applications and 12 authorized invention patents have been granted. In addition, through the manufacturing units of headquarters, Chutian Huaxing, Chutian Changxing, Pilian Chutian and other manufacturing units, the company has introduced a large number of manufacturing process experts in the manufacturing industry and formed a perfect precision machining manufacturing system. The core components and components, completed through independent processing, are committed to realizing the independent control of the core components of the whole industry chain and getting rid of the fluctuation of production capacity caused by outsourcing. At the same time, through the deep integration with ROMACO, the German manufacturing concept is implanted into the company's manufacturing system, which further improves the manufacturing process level of the company's products.

In August 2023, the company issued a preliminary plan to issue convertible corporate bonds to unspecified objects, with a proposal to raise no more than 1 billion yuan. After deducting the relevant issuance costs, the net raised funds are intended to be invested in the following projects: 1) the first phase of the biological engineering construction project, the proposed use of raised funds 630 million yuan; 2) Medical equipment and Materials Technology Research Center project, the proposed use of raised funds 250 million yuan 3) to supplement the working capital, it is proposed to use the raised capital of 120 million yuan. We believe that the implementation of this proposed fund-raising investment project will help the company to further improve its product line, improve its profitability, enhance its core R & D competitiveness, attract high-quality talents, and meet the needs of working capitals. consolidate the foundation for high-quality development.

Risk factors: the risk that Romaco integration is less than expected; the risk that the company's order growth is not as expected; the risk that the progress of domestic substitution is not as expected; the risk of a sharp rise in raw material prices; and the risk of higher-than-expected changes in industry policy.

Profit forecast, valuation and rating: taking into account the relatively low downstream demand in the domestic biomedical market, we adjusted the company's EPS forecast for 2023-2025 to 1.11pm 1.37pm 1.65 yuan (the original forecast was 1.20pm 1.47pm 1.82 yuan), and the current price corresponding to PE is 11x/9x/8x. We refer to comparable companies (East Fulong, Tailin Biology, Mensong International, Xinhua Medical, Canaan Technology, etc.) with an average PE of 17 times in 2023 (based on Wind consensus expectations), taking into account the fierce competition in the industry market, customer order gross margin shrinking, the company's product gross profit margin decreased, giving the company 16 times PE in 2022, corresponding to the target price of 18 yuan, maintaining the "buy" rating.