Novizan announced its 2023 three-quarter report. The first three quarters achieved operating income of 869 million yuan (down 62.29% year on year); realized net profit of 76.39 million yuan (down 110.19% year on year); and realized net profit after deduction of net profit of 139 million yuan (down 119.95% year on year). On a quarterly basis, 2023Q3 achieved operating income of 298 million yuan (down 56.48% year on year); realized net profit of 4.7 million yuan (down 96.54% year on year); and realized net profit after deduction of net profit of 2101 million yuan (down 117.24% year on year).

Opinion: Regular business is steady, moderate, and improving, and the cost rate for the period has improved significantly from month to month. The revenue side declined significantly due to the contraction in demand for inspection-related business. Labor, depreciation and amortization, rent, etc. in expenses during the period were relatively high compared to fixed expenses. Combined with the decline in the scale of income, the increase in the cost ratio for the period dragged down the profit side.

Regular business is steadily improving, new products continue to be launched, and overseas business expansion is progressing steadily. 1) 2023Q3 business segment: (1) Life science: achieved revenue of about 230 million yuan; the university side grew relatively steadily due to stable overall market funding sources and customer demand; the industrial side saw a slowdown in overall market demand due to downstream customers focusing more on R&D investment and pipeline management and seeking efficiency. (2) In vitro diagnosis: Revenue is about 34 million yuan. Respiratory pathogen testing and infection screening programs in cooperation with Mindray Medical have been officially implemented. It is expected that revenue contributions can be gradually realized in the fourth quarter as downstream testing demand increases; (3) Biomedicine: CRO testing and vaccine evaluation reagent business declined, and revenue from new drug development reagents was about 35 million yuan, an increase of 50% + over the previous year. 2) Overseas revenue in the first three quarters was close to 30 million, and the gross profit level and number of effective customer visits continued to rise. 3) The rapid launch of new products such as cellular protein serums, transfection reagents, protein markers, and luminescence solutions is expected to contribute to additional volume. Furthermore, the main core indicators of Alzheimer's disease-related testing products have completed relevant internal feasibility verification, and client verification and registration preparations will be initiated later.

On a month-on-month basis: There was a slight decrease in gross margin, and the cost ratio improved significantly during the period. 2023Q3: Gross margin was 68.33%, down 1.45pct year on year, down 8.02pct month on month. Margin fluctuations are mainly due to factors such as intense competition in terminal prices in life science business, product structure changes, and revenue scale reduction in the biomedical sector; sales expense ratio 34.34%, up 13.62 pct year on year, down 11.75 pct month on month; management expense ratio 19.09%, up 9.04pct year on year, 0.58pct over month; R&D expenses rate 24.97%, up 8.50pct year on year, month on month, month on month Decreased 7.38pct. The obvious year-on-year increase in the cost rate during the 2023Q3 period is mainly due to the large scale of unconventional business revenue and dilution expenses in the same period last year. The significant month-on-month improvement is mainly due to the completion of the company's personnel adjustments and optimization, and the gradual effects of R&D resource focus and cost budget management. We expect that the cost rate will continue to be optimized during the 2023Q4 period.

Profit forecast and investment advice: Novizan is a leading domestic reagent with strong business scalability. In the short term, it is expected that next year will experience significant improvements due to last year's high unconventional business base, this year's industry sentiment, impairment plans, and high period cost rates. We expect the company to achieve net profit of 5 million yuan, 194 million yuan, and 287 million yuan from 2023-2025, with year-on-year increases of -99.2%, 3863%, and 47.9%, respectively. The current stock price corresponding to PE is 2659x, 67x, and 45x, respectively. Maintain a “buy” rating.

Risk warning: industry competition intensifies; overseas expansion falls short of expectations; new product development and sales fall short of expectations.