Matters:
The company released financial reports. In '23, the company achieved revenue of 543 million yuan (-24.19%), net profit to mother of 89 million yuan (-28.34%), and deducted non-net profit of 64 million yuan (-37.11%). In 24Q1, the company achieved revenue of 93 million yuan (-23.61%), net profit to mother of 4.49 million yuan, and deducted non-net profit of 5.62 million yuan.
Commentary:
Performance is under pressure due to collection and medical compliance actions. In 2023, the centralized procurement of HVP, hormone, infectious disease, biochemical and other testing products in multiple provinces and cities led by Anhui and Jiangxi provinces, and the medical industry compliance actions that began in the second half of the year had a certain impact on the company's reagent sales and the installed capacity of supporting instruments. By product, IVD reagent revenue in 23 years was 500 million yuan (-6.23%), and IVD instrument revenue was 38 million yuan (-78.75%). The instrument decline was significant. It was related to the high base of COVID-related instruments in '22 and the extension of installation approval time due to compliance actions. A total of 257 units (sets) of various instruments (including sales) were installed in 23 years.
The increase in gross margin was due to the restoration of the product structure. Due to the large decline in instrument revenue, the share of instrument revenue decreased to 6.98% (-17.91 pct), and the share of reagent revenue increased to 92.19% (+17.65pct), which basically returned to 2019 levels. Since the gross profit margin of reagents (70.00%) is much higher than the gross profit margin of instruments (3.02%), the company's overall gross margin increased from 57.04% in '22 to 65.26% in '23.
The decline in expenses was less than the decline in revenue, which led to a decline in profit margins. The absolute value of the company's sales, R&D, and management expenses all declined year on year in '23, but due to a larger decline in revenue, the sales expense ratio, R&D expense ratio, and management expense ratio increased to 32.34% (+5.16pct), 14.32% (+3.24pct), and 5.80% (+0.60pct), respectively. The increase in the expense ratio offset the impact of gross margin, and the company's net interest rate to mother fell to 16.47% (-0.96pct) in '23.
Set up a wholly-owned subsidiary in Singapore to accelerate overseas market expansion. In March '24, the company invested in the establishment of a wholly-owned subsidiary in Singapore, which will take advantage of Singapore's advantages as an international trade center to accelerate the internationalization of the company's business.
Investment advice: Combined with the 23-year annual report performance (revenue pressure due to collection and medical compliance), we expect domestic business to gradually improve, and demand suppressed earlier will gradually be released. The company's net profit for 24-26 was 1.4, 1.6, and 190 million yuan (the original forecast values for 24-25 were 1.2 million yuan and 150 million yuan), up 57.2%, 16.1%, and 17.3% year-on-year, and EPS was 0.86, 0.99, and 1.17 yuan, respectively. According to DCF model estimates, the company's reasonable market value is 3.1 billion yuan, and the corresponding target price is 19 yuan, maintaining a “recommended” rating.
Risk warning: 1. Flow fluorescence self-exemption testing, chemiluminescence testing, and methylation business volume did not meet expectations; 2. The installed capacity of flow fluorescence instruments, chemiluminescence meters, assembly lines, etc. did not meet expectations; 3. The effects of marketing reforms did not meet expectations.