Incident: The company released its 2023 annual report, achieving operating income of 1,044 million yuan (+23.91%), net profit of 261 million yuan (-0.86%), net profit of non-return to mother of 239 million yuan (+52.21%). In 2022, the company completed technology transfer of SDC2 products, generating asset disposal revenue. On a quarterly basis, Q4 achieved operating income of 336 million yuan (+38.28%), net profit attributable to mother of 87.75 million yuan (+121.68%), and net profit of 84.95 million yuan (+137.24%) after deducting non-return to mother.
Revenue from test reagents is growing rapidly, and cooperation between pharmaceutical companies continues to deepen. By business, in 2023, the company achieved revenue of 860 million yuan (+40.64%) of detection reagents, independently developed and approved 26 types of cancer genetic testing products in China (all with diagnostic labels); achieved revenue of 84.9359 million yuan (-37.09%). The two subsidiary testing institutes have the qualifications and ability to carry out a full line of cytopathology, histopathology, and molecular pathology clinical examination services. The optimal technical platform can be selected for LDT product design and development according to different projects; achieved revenue of 887.066 million yuan for drug clinical research services (+3.10%). We have reached cooperation with many well-known pharmaceutical companies at home and abroad to support clinical research on drugs at different stages.
The domestic market has benefited from industry compliance, and the foreign market has been further strengthened. Domestically, the company has a direct sales network covering more than 500 leading hospitals in China, with a direct sales team of more than 400 people, which is responsible for domestic marketing services, and covers markets outside the direct sales network through product agents and testing services. The domestic business achieved revenue of 785 million yuan (+23.65%) in 2023. Among them, in-hospital test reagent revenue increased by more than 40% year on year, highlighting compliance advantages. Overseas, on the basis of consolidating the marketing system in the East Asian and European markets, the company gradually expanded to markets such as Southeast Asia, the Middle East, Africa, and Latin America. The international business achieved revenue of 255 million yuan (+24.68%) in 2023. After PCR-11 gene products were included in Japan's health insurance, marketing was effective, and multi-pipeline products were newly admitted to the European Union, Thailand, Indonesia, Colombia, Mexico, Turkey and other countries.
Grasp clinical needs and continuously expand the product pipeline. The company's R&D has always been guided by clinical needs and patient benefits. In 2023, MSI (microsat instability) products were approved for the first diagnosis of pan-cancer immunotherapy, and the domestic high-throughput gene sequencer ADX-seq200 Plus was approved for the market. In accordance with development standards for Class III IVD products, the company has a rich LDT product line and is undergoing registration and approval, such as HRR and HRD products to guide the use of PARP inhibitors for ovarian cancer/prostate cancer/pancreatic cancer/breast cancer, Classic Panel to guide pan-cancer targeted therapy testing, Master Panels that meet the multiomics testing needs of pan-cancer types, and various molecular typing, auxiliary diagnosis, and early tumor detection products.
Profit forecast: We expect the company's net profit to be RMB 317/4.01/506 million for 2024-2026, respectively, and EPS of RMB 0.79/1.01/1.27, respectively. The company continues to promote the admission of compliant products to hospitals, and the in-hospital market share has further increased. We have given the company 25-30X PE in 2024, with a corresponding reasonable value range of 19.86-23.84 yuan (corresponding PB is 3.93-4.71X, corresponding PS is 6.18-7.42X, referring to comparable companies, we think the valuation is at a reasonable level) to maintain a “superior to the market” rating.
Risk warning: Competition in the industry intensifies, new product launches fall short of expectations, product development and registration risks.