Event: The company publishes its report for the first quarter of 2024. In the first quarter of 2024, the company achieved operating income of 233 million yuan, an increase of 19.53% year on year; realized net profit of 64 million yuan, an increase of 12.01% year on year; realized net profit without deduction of 57 million yuan, an increase of 26.44% year on year.

Comment:

Revenue achieved steady growth, and profitability was further enhanced after excluding the impact of equity incentives: in the first quarter of 2024, the company achieved operating income of 233 million yuan, an increase of 19.53% year on year; realized net profit of 64 million yuan, an increase of 12.01% year on year; realized net profit without return to mother of 57 million yuan, an increase of 26.44% year on year. Amortization of equity incentive expenses in the first quarter led to an increase in total costs. If this factor is excluded, net profit to mother increased 26.70% year over year, and net profit after deducting non-return to mother increased 45.13% year over year. The year-on-year increase in net profit attributable to mother in 24Q1 was mainly due to a restorative increase in operating income compared to 23Q1 and an increase in interest income from time deposits. After excluding the impact of equity incentives, the company's profitability increased, and its performance was in line with expectations.

R&D investment continues to grow, and many products are being promoted: R&D expenses reached 48 million yuan in the first quarter of 2024, an increase of 30.75% over the previous year. 2024Q1 added 2 new invention patents. In addition, products such as the PCR-11 gene, IDH, and HER2/er/PR are under NMPA approval, and HRD products are applying for innovative medical devices; approval of various tumor-associated diagnostic products is progressing rapidly. The increase in R&D investment and the promotion of new products will continue to enrich the product line and enhance the company's competitiveness.

Expert consensus prioritizes recommendations and consolidates leading position in accompanying diagnosis: In 2023, the company was approved as the first MSI companion diagnostic test kit. In the “Expert Consensus on Microsatellite Instability (MSI) Testing Technology”, the important role of MSI testing in tumor treatment was once again affirmed. The company plans to rapidly advance pre-testing and admission of MSI products in 2024; in the PD-L1 testing expert consensus released in February 2024, Ed Biotech's PD-L1 test kit was obtained as a representative of domestically produced reagent products for immunotherapy companion diagnosis Priority recommendation.

At present, the company's PD-L1 products have completed pre-testing and admission work in more than 100 hospitals, laying a good foundation for the company to develop the immunohistochemistry market. The advancement of MSI and PD-L1 products is expected to reinforce the company's leading position in concomitant diagnosis of tumors.

Profit forecast, valuation and rating: We maintain the 24-26 net profit forecast of 3.15/3.79/454 million yuan. The current price is 28/23/19 times PE for 24-26. Considering that the company is a leading enterprise in the domestic cancer diagnosis industry, has technical barriers and product advantages, we are optimistic about the company's long-term development and continue to maintain a “buy” rating.

Risk warning: Risk of product development and approval falling short of expectations, increased risk of market competition.