Incident: On March 30, 2024, the company released its 2023 annual report: annual revenue of 1,742 million yuan, up 15.27% year on year; net profit to mother of 524 million yuan, up 34.59% year on year; net profit after deducting 511 million yuan, up 32.50% year on year; net operating cash flow of 585 million yuan, up 47.69% year on year.

Among them, revenue for the fourth quarter of 2023 was 508 million yuan, up 30.69% year on year; net profit to mother was 152 million yuan, up 27.19% year on year; net profit after deducting non-net profit of 142 million yuan, up 15.78% year on year; and net operating cash flow was 218 million yuan, up 57.25% year on year.

The volume of outpatient clinics and surgeries in medical institutions has fully recovered, driving an increase in sales of biochemical and pathological reagents. In terms of product composition, the in vitro testing reagent business achieved revenue of 1,634 billion yuan in 2023, an increase of 14.43% over the previous year, accounting for 93.85% of revenue; the in vitro testing instrument business achieved revenue of 908.735 million yuan, an increase of 32.29% over the previous year, accounting for 5.22% of revenue; instrument leasing, inspection services and experimental support businesses achieved revenue of 2.0438 million yuan and 98.524 million yuan respectively.

Cooperate with EGI to explore overseas and deepen the global layout strategy. In terms of regional distribution, in 2023, the domestic business achieved sales revenue of 1,710 billion yuan, an increase of 15.42% over the previous year; the overseas business achieved sales revenue of 31670 million yuan, an increase of 7.87% over the previous year.

On December 14, 2023, the wholly-owned subsidiary Maxine Biotech Holdings subsidiary and ElitechGroup Inc. (“EGI”) has signed a “Product Distribution Agreement”, which is expected to use EGI's mature sales network and channels to promote and sell related products at lower sales costs, helping the company quickly develop markets and enhance performance.

Sinopharm has been empowered in many ways to vigorously develop the pathology sector. Maixin Biotech focuses on histopathology platforms and further improves the immunopathology+molecular pathology technology layout by investing in FISH companies; in 2023, it achieved revenue of 724 million yuan, an increase of 12.21% over the previous year. Since using the Sinopharm platform in 2023, Maxine Biotech has signed a strategic cooperation agreement with Sinopharm Genomics. In 2024, it is expected to use the top nine channels to further expand its market share and consolidate its position as a leading domestic pathological diagnosis company.

In addition, the company completed a division reform in 2023, thereby enabling the laboratory division and the pathology division to share clinical, academic, marketing resources, etc., and give full play to the advantages of intensification at the BD level to promote the collaborative development of the two major business systems.

The sales expense ratio declined significantly. The overall net margin increased by 3.87 pct. The company's comprehensive gross margin increased 0.07 pct to 74.66% year on year in 2023, of which the gross margin of in vitro testing reagents increased 0.55 pct to 78.89% year on year. The sales expense ratio decreased by 2.16 pct to 20.90% year on year. We expect the company's overall net interest rate to increase 3.87 pct to 29.98% year over year, mainly due to the reduction in equity incentive costs and the increase in the company's scale effect; the R&D expense ratio increased 0.27 pct to 9.35% year over year; the financial expense ratio decreased by 0.77 pct to 2.42% year over year; under the combined influence, the company's overall net interest rate increased by 3.87 pct to 29.98% year on year.

Among them, the comprehensive gross profit margin, sales expense ratio, management expense ratio, R&D expense ratio, financial expense ratio, and overall net profit margin for the fourth quarter of 2023 were 72.38%, 18.41%, 8.96%, 10.43%, 1.42%, and 30.31%, respectively, with changes of -3.76pct, -2.91pct, +4.38pct, +2.26pct, -1.09pct, and -0.52pct, respectively.

Profit forecast and investment rating: Based on the analysis of the company's core business sector, we expect the company's revenue to 2024-2026 to be 2,088 million/2,933 million, with year-on-year growth rates of 20%/19%/18%, respectively; net profit to mother of 627 million/771 million/942 million, respectively, with year-on-year growth rates of 20%/23%/22%; EPS is 1.07/1.31 /1.60, corresponding to the closing price of April 3, 2024, 17 times 2024 PE Maintain a “buy” rating.

Risk warning: Risk of changes in industry regulatory policies, increased risk of fierce competition, risk of new product development and registration, management risks brought about by business integration and scale expansion.