Summary of events: on October 25, the company released its third quarterly report of 2023. In the first three quarters of 2023, the company achieved revenue of 930 million yuan, + 12.2% year-on-year, and net profit of 180 million yuan, + 39.8% year-on-year.

Among them, 2023Q3 achieved revenue of 310 million yuan, year-on-year-0.2%, month-on-month + 1.6%; net profit of 60 million yuan, year-on-year + 28.7%, month-on-month + 18.4%.

Large customer large item strategy to stabilize performance growth, reduce cost and increase efficiency to improve profitability. In the first three quarters of 2023, the company realized revenue of 330 million yuan for pig vaccines, + 8.9 percent for poultry vaccines and antibodies, 270 million yuan for chemicals, + 19.7 percent for ruminants, and 899000 yuan for ruminant vaccines. By further deepening the reform of the marketing management system and strengthening technical services, the company's management layer has ensured the continuous rise in the sales proportion of "big customers" and the steady increase of sales of "large items". In the downstream breeding market downturn to achieve a steady increase in performance. In addition, the company has taken a number of key measures such as "improving quality, reducing costs and increasing efficiency", continued to strengthen budget and cost control, and steadily reduced the rate of sales and management expenses, so as to increase the net profit rate through cost control in the event of a decline in gross profit margin. In the first three quarters of 2023, the sales expense rate was 27.2%, year-on-year-1.7PCT, management expense rate 6.6%, year-on-year-1.6 3.2PCT; sales gross profit margin 61.7%, year-on-year-1.3PCT, sales net profit rate 19.3%, year-on-year + PCT.

We will continue to increase investment in research and development, and the new production capacity will be completed soon. The company invested 60 million yuan in R & D in the first three quarters of 2023, a year-on-year increase of 24.1%. In terms of biological products, canine distemper and canine parvovirus live vaccine have passed the preliminary examination of new veterinary drug registration technology, and the quadruple live canine vaccine is being carried out in clinical trials. In terms of prevention and control of major animal diseases, the African Classical Swine Fever subunit Vaccine Project developed by the company in cooperation with Lanzhou Veterinary Research Institute submitted an application for emergency evaluation of veterinary drugs to the Ministry of Agriculture and villages in April, and then improved the relevant application materials according to the opinions of the first expert review of emergency evaluation, which was submitted for review again in August. The company is rapidly promoting the construction project of a new production base for highly pathogenic avian influenza vaccine in Preco (Nanjing), which is expected to be completed and accepted by the end of 2023, alleviating the bottleneck of the company's production capacity of highly pathogenic avian influenza vaccine.

Pet sector performance growth is eye-catching, cat triple vaccine can be put on the market. In the first three quarters of 2023, the company's revenue from functional health products for pets reached 6.4 million, which was + 322.0% compared with the same period last year. During the reporting period, the company completed the equity acquisitions of Luoyang Lejong Health Technology Co., Ltd. and Hip Chong (Shanghai) Network Technology Co., Ltd., further expanding the layout of the company's pet sector. In terms of pet vaccine, the company's cat triple inactivated vaccine is about to pass the emergency evaluation, and the next step will actively apply for temporary product approval number, which is expected to be available for sale early next year. If the company cat triple listed successfully, it can fill the gap of domestic cat triple vaccine, solve the contradiction between fewer approved products and larger market demand, and ensure the supply of pet vaccine.

Investment suggestion: we expect the company's net profit from 2023 to 2025 to be 2.51,3.32 and 383 million yuan respectively, EPS 0.71,0.94,1.09 yuan respectively, and corresponding PE 27,21,18 times respectively. With major customer marketing strategy and rich research and development achievements, the company will bring considerable performance growth and maintain the "recommended" rating after successful commercialization.

Risk hints: the prosperity of the aquaculture industry is not as good as expected; the release of production capacity is not as expected; the landing of new products is not as expected.