Incident: Recently, the company released its 2023 annual report, and revenue declined. In 2023, the company achieved a total revenue of 258 million yuan, a year-on-year decrease of 39.14%; realized net profit of 7.9307 million yuan, a year-on-year decrease of 80.41%; realized net profit without deduction of 3.6952 million yuan, a year-on-year decrease of 89.00%.

Comment:

Revenue declined, and the core business related to cancer grew steadily: in 2023, the company achieved revenue of 258 million yuan (YOY -39.14%), achieved net profit of 7.9307 million yuan (YOY -80.41%), and realized net profit of 3.6952 million yuan (YOY -89.00%) after deduction of non-return to mother. The year-on-year decline in the company's revenue in 2023 was mainly due to a large drop in revenue from non-core testing businesses, while revenue from oncology-related core businesses increased 17.22% year over year; the year-on-year decline in net profit to mother was mainly due to a sharp decline in testing business revenue. At the same time, the increase in fixed costs such as cumulative depreciation and personnel caused a slight increase in period expenses compared to the previous year.

Technological R&D drives development, and innovative products are shortlisted for the award: In 2023, the company invested 69.793 million yuan in R&D, an increase of 8.34% over the previous year, accounting for 27.03% of revenue. By the end of 2023, the company had obtained 61 patent authorizations, including 52 invention patents, 8 utility model patents, 1 design patent, and 6 new invention patents in 2023. The company's R&D investment continued to increase, and many products won industry innovation awards. In April 2023, the human MET gene amplification test kit developed by the company was selected as one of the “Top Ten Innovative Technologies/Products for Tumor Markers”. In August 2023, the “diffuse large B-cell lymphoma-related genetic test kit” jointly developed by the wholly-owned subsidiary Yuanqi Biotech and Ruijin Hospital won the top 100 most innovative medical device products in 2023.

Deepening cooperation and deepening applications in the field of accurate tumor diagnosis: On November 7, 2023, the company and AstraZeneca reached another cooperation to launch the self-developed digital PCR chip reading system into the AstraZeneca Guangzhou Accurate Oncology Diagnosis Innovation Center. The system is a highly automated nucleic acid absolute quantification platform. It innovatively uses an integrated microfluidic chip design and integrates microdroplet generation, chip PCR, and six-color fluorescence pathway collection and detection modules. It has the advantages of high accuracy, high sensitivity, high tolerability and absolute quantification, and will deepen its application in the field of accurate tumor diagnosis.

Profit forecasting, valuation and ratings: Considering that the company's sales reforms are gradually progressing, compounding the impact of industry policies, there may be a certain delay in product release. We lowered our 24-25 net profit forecast to 0.12/014 million yuan (the original forecast value was 0.50/63 million yuan, down 77%/78%, respectively), and introduced the 26-year net profit forecast to be 0.17 billion yuan. Considering that the product has high barriers and subsequent industry-academic-research incubation products are expected to gradually be implemented, we maintain the “buy” rating.

Risk warning: Product promotion falls short of expectations, and market competition increases risk.