Biomedical investment and financing is a leading indicator of upstream life science performance. Currently, the bottom has been completed overseas, and domestic recovery is still pending. We believe that if the US enters a cycle of interest rate cuts in the future, overseas biomedical investment and financing is expected to usher in a recovery, driving a gradual increase in R&D activity in the biomedical industry.

The company accounts for a high share of overseas revenue and a strong growth rate, and is expected to benefit from the recovery of overseas biomedicine. The company's 2023H1 overseas revenue accounted for 66.6%. In the first three quarters of 2023, the company's overseas non-COVID-19 routine business continued its rapid growth trend, with a year-on-year increase of more than 40%. At present, the company's sales channels cover active global biomedical research and development regions such as Asia Pacific, North America and Europe; we believe that the market space for recombinant protein products is large, the growth rate is stable, and the competitive pattern of the industry is relatively scattered. With the gradual accumulation of product cost advantages and brand effects in overseas markets, the company's overseas business has great potential for growth.

The domestic market is under pressure in the short term, and medium- to long-term demand is still improving. Affected by factors such as the decline in investment and financing, the leading company in the industry, BIO-TECHNE's performance in China fell by more than 20% in the fourth quarter of fiscal year 2023, and the domestic demand side was under pressure in the short term. In the medium to long term, BIO-TECHNE believes that the growth rate of the global industry for proteomics and other related reagents is still expected to maintain a medium single-digit growth rate. At the same time, it is still optimistic that China is the fastest growing region in the global life science industry for a long time. Additionally, referring to the statement made by Thermo Fly, a leading global life science company, at the JP Morgan Health Forum, it believes that the long-term growth rate of China's biomedical industry is expected to remain around 10%. In the long run, domestic innovation drug development activity remains at a high level, and demand for development-related reagents/consumables will continue to grow steadily.

Based on leading overseas companies and their own performance, the company's current valuation is cost-effective. Recently, there has been a lot of correction in the company's stock price. According to our forecast, the company's 2024 corresponds to 22X PE, and the average PE (TTM) value for the past ten years against the leading global company BIO-TECHNE is 54X, and the latest (2024.2.6) PE-TTM is 47X. In terms of growth, the compound revenue growth rates of 2017 to 2022 for Biopsis and BIO-TECHNE are 59% and 15%, respectively. We believe that the company's size and growth will also have better growth potential in the next few years. Good value for money.

Profit forecast and investment suggestions: Based on the industry and company's operating conditions, we adjusted our previous profit forecast. We expect that in 2023-2025, the company's revenue will be 552 million yuan/666 million yuan/795 million yuan, respectively, with year-on-year growth rates of 16.4%/20.6%/19.3%, and net profit to mother of 182 million yuan/219 million yuan/261 million yuan, respectively, with year-on-year growth rates of -10.8%/20.7%/19.2% respectively. The latest closing price (2024.2.6) is 26/22/18 times PE, respectively, maintaining a “buy” rating.

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