Incidents:

On March 28, 2024, Aladdin released the 2023 annual report: achieved operating income of 403 million yuan, up 6.55% year on year; realized net profit of 86 million yuan, down 7.48% year on year; realized net profit after deduction of 83 million yuan, down 3.30% year on year; gross sales margin 60.20%, up 1.55 pcts year on year; net sales margin was 21.30%, down 3.12 pcts year on year; at the end of 2023, the company's inventory value was 442 million yuan, year on year. It increased by 18.07%; the company's net cash flow from operating activities in 2023 was 56 million yuan, which changed from negative to positive.

In a single quarter of 2023Q4, the company achieved operating income of 120 million yuan, +6.79%, and +23.40%; realized net profit to mother of 0.31 million yuan, +14.35%, +31.00% month-on-month; net profit after deducting non-return to mother of 0.32 million yuan, +24.58% year-on-year, +42.97% month-on-month; gross sales margin was 61.66%, +3.62 pcts year-on-month, +1.96 pcts month-on-month; net sales margin was 25.93%, +2.11 pcts year-on-month, +1.50 pcts month-on-month pct; at the end of the 2023Q4 quarter, the company's inventory amount was 442 million yuan, +18.07% year over month, -5.69% month on month; net cash flow from operating activities was 62 million yuan, which changed from negative to positive year, +277.84% month on month.

Investment highlights:

High-end chemical business is growing rapidly, and revenue scale is steadily increasing

In 2023, the company achieved revenue of 403 million yuan, an increase of 6.55% over the previous year. By product sector, the high-end chemical sector achieved revenue of 210 million yuan, +14.72% year-on-year, and gross margin of 59.23%, +1.22 pcts year-on-year. The life sciences sector achieved revenue of 96 million yuan, -11.45% year over year, and gross margin of 66.03%, +8.18 pcts year over year. The analytical chromatography sector achieved revenue of 52 million yuan, +5.97% year over year, gross margin of 57.79%, or 4.81 pcts year over year. The materials science sector achieved revenue of 32 million yuan, +29.06% year over year, gross margin of 58.99%, -5.14 pcts year over year. The test consumables sector achieved revenue of 08 billion yuan, +15.38% year over year, gross margin of 43.81%, and +10.58 pcts year over year.

In 2023, the company's net profit to mother was 86 million yuan, down 7.48% year-on-year, mainly due to increased expenses during the company period. In 2023, the company's sales/management/finance/R&D expenses rate was 7.98%/15.96%/12.72%/0.07%, respectively, -0.43/+2.04/+2.42/+1.00 pcts year-on-year. The increase in the company's R&D expenses is mainly due to the company's continuous promotion of product research and development, increased salary support for new R&D personnel, and increased depreciation expenses for new equipment. At the end of 2023, the company's inventory amount was 442 million yuan, up 18.07% year on year, mainly due to the expansion of the company's business scale, which led to a subsequent increase in inventory. The company's net cash flow from operation and production in 2023 was 56 million yuan, which changed from negative to positive, mainly due to the company's reduction in raw material procurement payments.

Steadily promote project research and development and expand the scale of product varieties

There are many types of scientific research reagents, and the process is complicated. In recent years, the demand for scientific research reagents has gradually evolved to high-purity reagents and special reagents such as labeled substances. In 2023, the company continued to increase investment in R&D, continuously expand product categories, and effectively improve the ability to transform technological achievements and development efficiency. In 2024, the company will focus R&D on the fields of antibody drug conjugates, drug target ligands, highly active recombinant proteins, diagnostic antibody pairs, immunohistochemical antibodies, and flow antibodies. In 2023, the company invested 51 million yuan in R&D, an increase of 31.56% over the previous year. By the end of 2023, the company had applied for 194 patents, including 53 invention patents; it had obtained a total of 132 authorized invention patents, of which 20 were invention patents; the company had more than 65,000 varieties in stock and 200,000 SKUs in stock.

Brand+channel build a moat, domestic substitution accelerates

The company has long been deeply involved in the R&D and production of research reagents needed for strategic emerging industries in the country. Its products cover the four major fields of high-end chemistry, life science, analytical chromatography and materials science, and independently make “Aladdin” brand research reagents and “Silicon Valley” brand test consumables. In the comprehensive evaluation survey of domestic reagent brands by the National Chemical Reagent Information Station, the “Aladdin” brand ranked first in terms of variety selection for 4 consecutive years. At the same time, the company has closely followed the Internet wave and established an e-commerce model. Website traffic and visits have continued to rise in recent years, driving sales growth.

By the end of 2023, some of the company's products had reached the same international level, achieved import substitution for some products, and gradually broke the absolute monopoly of foreign companies.

Profit forecasts and investment ratings estimate that the company's net profit due to mother in 2024-2026 will be 1.16, 1.58, and 217 million yuan, respectively, corresponding to PE 25.94, 18.97, and 13.86 times, respectively. As a leading domestic research reagent enterprise, the company continues to expand its product range and build a brand+channel moat, and is expected to maintain rapid development. First coverage, giving a “buy” rating.

Risks suggest that the development of new products falls short of expectations; the competitive pattern of the industry deteriorates; the risk of falling product prices; and the domestic substitution process falls short of expectations.