Events: The company released its three-quarter report for 2023. The first three quarters of 2023 achieved operating income of 413 million yuan, an increase of 17.02% over the previous year; realized net profit of 128 million yuan, a year-on-year decrease of 22.68%; and realized net profit after deduction of 124 million yuan, a year-on-year decrease of 18.02%.

Comment:

Regular business continues to grow at a high rate, and overseas revenue is growing at a strong rate. According to disease application areas, the company's COVID-19 business revenue for the first three quarters of 2023 was 40 million yuan (-39.7%), and non-COVID-19 conventional business revenue was 373 million yuan (+30.0%). Non-COVID-19 conventional business continued to grow rapidly. Among them, overseas conventional business increased by more than 40% year on year, and overseas performance growth was still strong. Overseas market prospects are broad. The company's current sales channels have covered major biomedical regions such as Asia Pacific, North America and Europe. Looking forward to the future, the company's overseas performance is expected to continue to improve. At the same time, the company's active deployment of products and technical services such as CGT and accompanying diagnosis is expected to become new growth points for the company in the future.

The company's gross margin remained relatively stable due to short-term pressure on the profit side of business development. The company's gross margin for the first three quarters of 2023 and 2023Q3 was 91.4%/91.9%, respectively, -1.2pct/+1.5pct, respectively. The 2023Q3 gross margin was +0.8pct month-on-month in 2023Q2+0.8pct. Overall gross margin remained relatively stable, and year-on-year fluctuations were mainly affected by product structure. The company's sales, management, R&D, and financial expenses for the first three quarters of 2023 were 28.2% (+7.1pct)/15.4% (+1.1pct)/22.8% (-2.1ct)/-11.6% (+0.7pct), and the total cost rate for the period was 32.1% (+9.0pct). Due to business expansion demand and equity incentives, sales and management expense rates have increased. Fluctuations in financial expense rates are mainly due to changes in exchange earnings and financial management revenue. In the future, as scale effects are reflected, the company's period expense ratio is expected to be steadily optimized.

Profit forecast and investment advice: Based on the company's business situation, we adjusted our previous profit forecast. It is estimated that in 2023-2025, the company's operating income will be 560 million yuan/712 million yuan/901 million yuan, with a year-on-year growth rate of 18.1%/27.0%/26.7%, respectively, and net profit of 183 million yuan/244 million yuan/312 million yuan, respectively, with a year-on-year growth rate of -10.3%/33.6%/27.7%. The latest closing price corresponding to PE is 45/34/26 times, respectively. Demand for biomedical R&D at home and abroad is still strong. The company's overseas layout is ahead of its domestic peers. In recent years, the company's product quality has been continuously improved, and its price advantage, and brand influence has continued to increase. In the future, with the further development of overseas sales, the company's revenue side is expected to continue the rapid growth trend, and profit margins are expected to gradually pick up as the scale effect, maintaining the “buy” rating.

Risk warning: loss of customers; sales falling short of expectations; new product development falling short of expectations; overseas business expansion falling short of expectations.