Event: The company released its report for the third quarter of 2023. In the first three quarters of 2023, the company achieved operating income of 869 million yuan, a year-on-year decrease of 62.29%, net profit of 76 million yuan, a year-on-year decrease of 110.19%; and realized net profit of non-return net profit of 139 million yuan, a year-on-year decrease of 119.95%.

On a quarterly basis, in the third quarter of 2023, the company achieved operating income of 298 million yuan, a year-on-year decrease of 56.48%; realized net profit of 0.05 billion yuan, a year-on-year decrease of 96.54%; and realized net profit after deducting non-return net profit of 21 million yuan, a year-on-year decrease of 117.24%. The company's quarterly performance declined, which is expected to be mainly affected by the base figures caused by COVID-19 self-testing products in the same period in 2022. At the same time, the company continued to promote research and development of key projects and overseas channel construction. Related investment increased, which had an impact on short-term profit growth. We expect that with downstream scientific research and the continued recovery of corporate customer demand, the company's regular business is expected to accelerate.

The dilution effect of the reduction in revenue scale has weakened, and profit margins have fluctuated in the short term. In the first three quarters of 2023, the company's sales expense ratio was 37.90%, up 22.92 pp year on year, management expense ratio 19.90%, up 12.04 pp year on year, R&D expense ratio 28.34%, up 16.63 pp year on year. Expense ratio increased in several periods, mainly due to a decrease in revenue scale, weakening the dilution effect, and financial expenses ratio -1.79%, down -1.37 pp year on year. The company's gross margin for the first three quarters of 2023 was 70.93%, down 1.91pp year on year, net profit margin -8.94%, down 41.46 pp year on year.

The life sciences business is recovering well, and working with Mindray to accelerate the release of new IVD products into hospital admissions. 1. Life science business. Since 2023Q3, scientific research customers such as universities have entered a period of rising procurement of scientific research reagents. At the same time, innovative pharmaceutical companies, CRO&CDMO and other enterprise customers have improved along with the improvement in the macro environment, and demand has rebounded, and the life science industry boom has further picked up. The company has benefited significantly as a leader in the domestic brand industry. Referring to the company's historical performance and industry conditions, we expect Q3's life science business to achieve restorative growth of nearly 20%. 2. In vitro diagnosis business, the company has established a rich POCT product line, developed a number of special hypersensitivity testing programs based on key common technology platforms, reached a strategic cooperation with device leader Mindray Medical, and joined forces to launch an overall automated solution for respiratory pathogens testing and infection screening to achieve comprehensive testing of respiratory pathogens, blood routines, and inflammation, which is expected to drive continuous growth in in vitro diagnosis business. Referring to the company's historical performance and industry conditions, we expect Q3's in vitro diagnostic business to achieve a growth rate of about 10-20%. Considering the high incidence of respiratory diseases such as influenza in autumn and winter, we expect the company's related testing requirements to accelerate further. 3. Biomedical business. The company continues to accept new customer orders around the three sectors of new drug development reagents/vaccine evaluation reagents, vaccine clinical CRO services, and vaccine raw materials. At the same time, it further improves operation management and service quality for existing customers. The customer penetration rate and repurchase rate continue to increase. We expect the biomedical business to continue to develop steadily.

Profit forecast and investment advice: According to performance data, we expect regular business to continue to grow rapidly, and the COVID-19 base may cause short-term fluctuations. The company's revenue is expected to be 12.74, 16.61, and 2.102 billion yuan in 2023-2025, a year-on-year increase of -64%, 30%, and 27%; the company's net profit for 2023-2025 is expected to be 0.63, 1.96, and 311 million yuan, up -89%, 210%, 59% year on year. The company's current stock price corresponds to 203, 65, and 41 times PE in 23-25. Considering that the company is the leader in the domestic biological reagent industry, it is expected to maintain a high growth trend and maintain a “buy” rating in the future.

Risk warning events: risk of new product development, risk of policy changes, risk of increased market competition, etc. There is a risk that public information used in research reports may be lagging behind or not being updated in a timely manner, etc.