Short-term performance is under pressure. According to the company's 2023 performance report, in 2023, the company achieved operating income of 1,287 billion yuan, a year-on-year decrease of 63.9%; realized net profit due to mother of 706.7 million yuan, a year-on-year decrease of 111.9%; and realized net profit deducted from mother of 190 million yuan, a year-on-year decrease of 131.8%. The large decline on the revenue side was mainly due to the sharp decline in demand for relevant diagnostic testing materials and terminal test reagents in the downstream market, and the company's business revenue declined sharply; the profit side was mainly due to factors such as delays in the overall cost decline, stock payment and amortization of stock payments and amortization of implemented restricted stock incentive plans, and a sharp year-on-year increase in government subsidy amounts.

New categories continue to be added, and the overseas business growth trend is remarkable. In 2023, the company deepened its strategic layout in key business areas, and key product lines in the life science sector continued to be upgraded and iterated. The overall business growth was steady. The Q3 life science section achieved revenue of about 230 million yuan; the in vitro diagnosis business Q3 achieved revenue of about 34 million yuan, and the company was successively approved four types of three medical device registration certificates for influenza A/B testing and Mycoplasma pneumoniae antibody testing. The development of the company's autoimmune testing products will continue to advance. With registration and other work, the development progress of Alzheimer's disease detection reagents is in line with expectations; the biomedical business has gradually transitioned and adjusted, and the new drug development reagent and mRNA GMP raw material business have maintained a good growth rate; overseas business has overcome many difficulties in the early stages of exploration, and the growth trend is remarkable.

Expenses improved month-on-month during the period, turning a loss into a profit in the third quarter. Along with the completion of the company's personnel optimization, the focus on R&D projects and R&D resources, and the strengthening of cost budget control, the company achieved remarkable results in cost control and R&D efficiency in Q3. Expenses during the period showed an improvement trend in year-on-year and month-on-month data. The Q3 company's R&D and sales expenses decreased by 14% and 17%, respectively, month-on-month, and R&D and sales expenses fell to 25.0% and 34.3%, respectively. The company achieved net profit of 4.7044 million yuan in Q3, achieving profit in a single quarter. Looking at the whole year on a quarterly basis, the Q4 revenue scale will be higher than in other quarters, and there is still some room for the company's expenses to decline throughout the year.

Due to the decline in demand related to the COVID-19 business and the impact of other one-time factors during the year, we lowered the company's earnings per share to -0.18, 0.3, and 0.85 yuan respectively (the original forecast earnings per share for 23-24 were 1.44 and 1.74 yuan, respectively). We are optimistic about the company's medium- to long-term life science and in vitro diagnosis business development. Using DCF valuation, we gave a target price of 23.75 yuan to maintain the purchase rating.

Risk warning

Downstream R&D investment falls short of expectations, in vitro diagnosis is affected by volume procurement policies, and promotion of new products falls short of expectations, which in turn affects the company's future profit and valuation level.