3Q23 revenue is in line with our expectations, deducting non-net profit is slightly lower than our expected 3Q23 performance: revenue is 249 million yuan, up 20.38% over the same period last year; net profit from home is 47 million yuan, down 65.17% from the same period last year; and deducting 45 million yuan from non-net profit is the same as the same period last year. The revenue is basically in line with expectations, and the deduction of non-net profit is slightly lower than expected: 1) the increase in financial expenses caused by the exchange losses of US dollars and euros in foreign currency assets; 2) the increase in the rate of R & D expenditure in the third quarter caused by increased research and development.

Trend of development

3Q23 revenue is basically in line with expectations, exchange losses and increased R & D deduction of non-net profit is slightly lower than expected.

The company's 1-3Q23 revenue was 708 million yuan, an increase of 18.08% over the same period last year, and its net profit was 174 million yuan, down 22.50% from the same period last year. The income in the third quarter alone was 249 million yuan, an increase of 20.38% over the same period last year, and a decrease of 5.56% compared with the same period last year. It was mainly due to the impact of the decline in the number of outpatients and operations in the hospital, and the in-hospital reagent sales recovered to a certain extent in September; the net profit of returning to the mother was 47 million yuan, down 65.17% from the same period last year, mainly due to non-operating income of 80.39 million yuan from the technology transfer of 3Q22 SDC2 products; deducting non-net profit of 45 million yuan, which was the same as the same period last year.

The introduction of equity incentive covers a wide range of areas, and the high-throughput gene sequencer has been approved. On September 9, 2023, the company announced the launch of a restricted equity incentive scheme to grant 5.5287 million restricted shares, accounting for 1.39% of the company's total share capital. The incentive targets include 403 core managers and core technical backbones, accounting for nearly 36.6% of the company's total staff at the end of 2022. On September 8, 2023, the company's high-throughput sequencer ADx-SEQ200 Plus obtained the III medical device registration certificate. ADx-SEQ200 Plus sequencer is an efficient, accurate and flexible table-based second-generation sequencer with medium and high data throughput. Its main advantages include:

1) flexible throughput; 2) lower cost than imported brands; 3) one-stop shop to meet customer needs.

High investment in R & D and rich product portfolio. The R & D expenditure of 1-3Q23 company was 151 million yuan, an increase of 24.07% over the same period last year, and the R & D expenditure rate reached 21.31%, which was much higher than that of other IVD companies.

As of July 2023, the company has 24 three types of medical device registration certificates, 2 accompanying diagnostic products have been approved in Japan and included in health insurance; 60 patents have been granted, including 52 invention patents, 8 utility model patents and 18 software copyrights; core invention patents are authorized by China, the United States, the European Union and Japan at the same time.

Profit forecast and valuation

Taking into account the decline in the number of outpatients and operations in the hospital, as well as the increase in R & D investment, we reduce the 2023 EPS income by 2.1% in 2024 to 1.02 billion yuan, the target price by 7.8% to 0.58 billion in 2024, and the target price by 7.9 to 29 yuan, which corresponds to 50.0 / 39.9 times in 2023, which is 28.4% higher than the current stock price. The current share price corresponds to 38.9 times / 31.0 times for 2023 Universe E in 2024. Maintain an industry rating that outperforms.

Risk

Product promotion progress and market education are not as expected; new product development and registration are not as expected; competitor price reduction pressure; potential IVD collection possibility.