Incidents:

The company released its 2023 annual report and 2024 quarterly report. In 2023, the company achieved revenue of 2,896 billion yuan, a year-on-year decrease of 19.75%; net profit to mother was 313 million yuan, a year-on-year decrease of 55.86%; net profit after deducting non-return to mother was 316 million yuan, a year-on-year decrease of 55.48%. In the first quarter of 2024, the company achieved revenue of 616 million yuan, a year-on-year decrease of 8.88%; net profit to mother was 120 million yuan, an increase of 3.05%; net profit after deducting non-return to mother was 118 million yuan, a year-on-year decrease of 2.00%.

The installed performance of the assembly line is impressive. In the future, it is expected to drive independent products from reagent loading companies to achieve revenue of 1.88 billion yuan (yoy -18.67%) in 2023. The reason for the decline is a decrease in demand for molecular diagnosis (including COVID-19) testing. On the reagent side, revenue from autonomous immunization reagents was 952 million yuan (yoy +18.68%), revenue from biochemical reagents was 577 million yuan (yoy +2.54%), and revenue from temporary testing reagents was 176 million yuan (yoy +27.38%). On the instrument side, the company shipped 4,016 large-scale instruments and assembly lines in 2023, including 189 free assembly lines. The installed performance was outstanding.

Increased marketing efforts put pressure on the profit side in the short term

The company's gross margin in 2023 was 55.27% (+1.05pp), and the net interest rate was 10.52% (-8.92pp). The decline in net interest rate was due to impairment of accrued assets and increased expense ratios. The company's impairment losses (including asset impairment losses and credit impairment losses) amounted to $94.41 million in 2023. In terms of expenses, the company's sales expenses ratio is 22.53% (+5.07pp), management expenses ratio 6.36% (+2.04pp), and R&D expenses rate 11.19% (+3.62pp). In 2023, the company added 64 new product registration certificates and launched an intelligent assembly line for all LABAS MIX laboratories to enhance automation capabilities and help develop performance.

Profit Forecasts, Valuations, and Ratings

Based on the company's increased marketing efforts, we adjusted the company's revenue for 2024-2026 to 3.07 billion yuan, 3.321 billion yuan and 3,767 billion yuan respectively, with year-on-year growth rates of 3.85%, 10.43% and 13.44% respectively, and net profit to mother of 370 million yuan, 494 million yuan and 680 million yuan respectively, with year-on-year growth rates of 18.36%, 33.49% and 37.66% respectively, and 3-year CAGR of 29.56%. In view of the company's assembly line driving reagent release later, with reference to comparable company estimates, we gave the company 25 times PE in 2024, with a target price of 15.10 yuan, maintaining a “buy” rating.

Risk warning: the implementation of collection policies falls short of expectations, compliance policies are getting stricter, and marketing is falling short of expectations