Events: The company released its 2023 three-quarter report. 23 The first three quarterly reports achieved revenue of 870 million yuan (-62.3% year-on-year), net profit of 0.8 billion yuan (-110.2% year-on-year), net profit of non-refunded net profit of -140 million yuan (-120.0%); 23Q3 achieved revenue of 300 million yuan (-56.5%), and realized net profit of 0.5 billion yuan (-96.5% year-on-year), achieving net profit of -0.2 billion yuan (-117.2% yoy).

The company's performance was under pressure in the short term, waiting for downstream demand to recover: Due to the impact of the external macroeconomic environment in the third quarter and the sharp decline in COVID-19 business revenue, the profit side was affected by the decline in revenue, and on the other hand, net profit declined due to relatively high fixed expenses such as labor, depreciation and amortization, and rent in period expenses in the short term. The gross margin and net profit margin in 2023 were 68.3% (-1.5pct) and 1.4% (y-18.4pct), respectively, and the sales expense ratio, management expense ratio, and financial expense ratio were 34.3% (yoy +13.6pct), 19.1% (yoy +9.0pct), and financial expense ratio -2.0% (y-1.4pct), respectively.

The company's R&D investment continues to increase, and the business sector is gradually being enriched: 2023Q3, the company's R&D expenditure is 0.7 billion yuan, and the R&D expenditure rate has reached 25.0% (+8.5 pct over the same period). In the first half of this year, the company mainly focused on RSV (respiratory syncytial virus) and HPV (human papillomavirus) pipelines in terms of vaccine evaluation reagents and HPV (human papilloma virus) pipelines, successfully developed a test reagent for evaluating the relative efficacy of vaccines in vitro, and completed the launch of related products, making further breakthroughs in the mRNA process platform. In addition, the company's in vitro diagnosis division obtained 2 new class 3 medical device registration certificates and added 2 new medical device registration certificates, including Mycoplasma pneumoniae IgM antibody test kit (quantum dot fluorescence immunochromatography), pneumonia Prototype IgG Antibody test kits (quantum dot fluorescence immunochromatography) were approved for China's three types of medical device registration certificates in April and May 2023, respectively. Furthermore, in September of this year, the company obtained a Mycoplasma pneumoniae IgM/IgG antibody test kit (colloidal gold method), further enriching the company's product pipeline.

Profit forecasts and investment advice. Based on the company's performance in the first three quarters, we estimate that net profit for 23-25 will be 0.06/25/350 million yuan, respectively, corresponding to 23-25 PE valuation of 2165/52/36 times. Considering that the company is a leader in domestic molecular reagents, downstream application fields continue to expand and maintain a “buy” rating.

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