Key points of investment

Financial performance: Revenue increased slightly month-on-month, and profit in a single quarter turned positive

2023Q1-Q3: Achieved operating income of 869 million yuan, a year-on-year decrease of 62.29%, realized net profit of 76.39 million yuan, a year-on-year decrease of 110.19%; realized net profit deducted from non-mother - 139 million yuan, a year-on-year decrease of 119.95%.

23Q3: Achieved operating income of 298 million yuan, a year-on-year decrease of 56.48%; realized net profit of 4.7 million yuan, a year-on-year decrease of 96.54%, and realized net profit without deduction of 21.01 million yuan, a year-on-year decrease of 117.24%.

Growth capacity: Revenue was basically flat month-on-month. New products or companies that brought in new volumes had year-on-quarter results. We speculate that it was mainly affected by the base figure caused by large orders in the same period in 2022, self-inspection products, and the month-on-month revenue was basically flat, mainly affected by downstream scientific research and corporate customer demand. We believe that with the gradual recovery of demand for scientific research in the three major segments of the company's life science business, the gradual release of new products such as chemical bead purification kits, methylated single-chain library construction kits, and double-chain library construction kits, etc., is expected to gradually resume high growth in 24-25. The IVD sector company cooperated with Mindray Healthcare on the overall automated solution for respiratory pathogen detection and infection screening in 2023H1, and related verification work has been carried out. We expect to begin gradual deployment in 2024. The chemiluminescence platform's Alzheimer's series products have made major breakthroughs in raw material research, and the products have completed feasibility verification.

Profitability: Gross margin fluctuated slightly, and cost-side optimization clearly showed a 2023Q3 gross profit margin of 68.33%, a year-on-year decrease of 1.45pct, and a month-on-month decrease of 8.02pct. We expect gross margin fluctuations to be mainly related to factors such as intense price competition in life science business terminals, changes in product structure, and reduction in biomedical revenue scale. The cost ratio improved markedly from month to month. The sales expense ratio was 34.34%, down 11.75 pct; the management cost ratio was 19.09%, an increase of 0.58 pct over the previous month; and the R&D expense ratio was 24.97%, down 7.38 pcts from month to month. Personnel optimization and resource focus are showing initial results. We expect the absolute value of the company's expenses to grow slightly in 2024-2025, and profitability is expected to increase further as revenue volume increases.

Innovation has always been the main theme of development that the company insists on

As of December 18, 2023, the company applied for 91 new intellectual property rights in 2023, including 54 invention patents and obtained 56 authorizations, including 24 invention patents. The company has always been committed to R&D and innovation, building the hard power of technology, and using innovation to overcome the cycle and raise the ceiling.

Profit forecasting and valuation

Taking into account the company's equity incentive goals and the gradual release of new products, we predict that the company's net profit due to mother in 2023-2025 will be 31.73 million, 176 million and 371 million yuan, respectively, and EPS of -0.08, 0.44 and 0.93 million yuan, respectively.

Corresponds to the closing price of December 28, 2023, about 73 times PE 2024. Refer to comparable company valuations and maintain an “overweight” rating.

Risk warning

Cyclical & volatile order delivery risk, merger and acquisition integration progress falling short of expectations, risk of impairment of goodwill, and risk of price reduction due to fierce market competition.