Leading comprehensive medical testing service in China, integrated development of “product+service”. Dian Diagnostics was founded in 1996, starting as an agent for Roche diagnostic products. In 2003, it began to build an independent third-party medical laboratory, and gradually realized a nationwide chain layout. Vigorous development of self-produced products began in 2011. In 2017 and 2018, Gloria Spectrometry, a subsidiary focusing on mass spectrometry testing, and Dipro Diagnostics, a subsidiary focusing on the development of high-end genetic analysis tools, were established respectively. Since 2020, the company has vigorously integrated the three business directions of “diagnostic services+channel products+self-produced products”, and is committed to providing overall solutions for hospital testing, while actively expanding 2C services and overseas markets. Dian is the second-largest chain of third-party medical testing laboratories in China. Benefiting from the full implementation of DRG reforms, there is broad scope for the future in the long term.

The service capabilities of medical testing terminals have been continuously strengthened, and multiple business models have helped customers at all levels to break through. From January to September 2023, the routine diagnosis business reached 4,080 billion yuan (+17.07%). As the company's medical diagnosis services return to conventional business, routine business is expected to grow rapidly in the future, mainly because: ① Terminal service capabilities tend to improve: At present, the company has formed an umbrella-shaped networked laboratory layout of “1 headquarters laboratory+4 regional central laboratories +36 provincial laboratories +56 precision central labs+nearly 700 cooperative laboratories”, which can provide 3,300+ testing programs, covering medical institutions 2.2w+, and delivery times of more than 95% of specimens can achieve 12h within the province, 36h across provinces, and 24h delivery of 80% of reports Reach; ② Multiple solutions continue to promote the share of special testing: the company closely fits into technology platform development, clinical services and disease solutions to advance hematological diseases, chronic disease disciplines and rare genetics fields. As of June 2023, the company's special testing business has increased to 41% of traditional diagnosis revenue; ③ Operational efficiency continues to improve: The company has effectively achieved digital industrialization by combining AI and other technologies, giving full play to intensification and scaling, which is expected to further promote cost reduction and efficiency.

The expansion of production lines has driven the rapid development of product business, and the synergistic effects of the three major businesses have been highlighted. ① Self-produced products: As of June 2023, the company has obtained 6 Class 3 registration certificates, 29 Class 2 registration certificates, and 152 Class I registered products. It has the ability to self-research leading domestic products. The product distribution network has covered 16 provinces and cities, and the self-produced production line includes molecular diagnosis, cell pathology, mass spectrometry diagnosis, etc. ② Channel products: The company's agent products cover more than 1,000 domestic and foreign brands such as Roche Diagnostics, Heeson Mikon, and Mérieux of France, etc., and 4,000+ end customers (including 2,000+ tertiary medical institutions). The company continues to enhance customer stickiness through “service+product” integration, increase transformation efforts, and expand precision central business. The rapid growth trend of product business is expected to continue through a nationwide channel network to achieve an effective transformation from “channel power” to “product power”.

Investment suggestion: The company is a leading third-party medical testing service provider in China, with the integrated development of “product+service”. With the improvement of the national layout, continuous increase in operating efficiency, and the continuous increase in the proportion of special examinations, regular business is expected to maintain rapid growth over a long period of time. We expect the company's net profit from 2023-2025 to be 7.67/11.98/1,596 billion yuan, -46.55%, +56.35%, +33.17%, and EPS of 1.22/1.91/2.55 yuan respectively. The current stock price corresponding to 2023-2025 PE is 20/13/10 times, maintaining the “recommended” rating.

Risk warning: the risk that regular business recovery falls short of expectations, the risk that accounts receivable repayment falls short of expectations, and the risk of a sharp drop in the price of inspection services.