Incident: The company announced its 2023 annual report. In 2023, it achieved revenue of 1,286 billion yuan, a year-on-year decrease of 63.97%; realized net profit to mother of -71 million yuan. The company also announced its 2024 quarterly report. The 2024Q1 achieved revenue of 302 million yuan, a year-on-year decrease of 0.21%; realized net profit of 0.5 billion yuan to mother.

Due to the impact of the business structure, the company's profitability fluctuates greatly. The company's management expenses rate in 2023 was 18.4%, up 10.1 pct year on year; sales expenses rate was 36.8%, up 22.1 pct year on year; R&D expenses rate was 26.3%, up 15.2 pcts year on year, and financial expenses were -1.5%, down 1.1 pct year on year. The company's gross margin in 2023 was 71%, up 2.1 pct year-on-year. The company's net interest rate in 2023 was -5.7%, a year-on-year decrease of 22.3pct.

Revenue declined a lot in 2023 due to the structure of the business. By sector, the company's revenue for biological reagents in 2023 was 944 million yuan, a year-on-year decrease of 53.06%; revenue from diagnostic reagents was 248 million yuan, a year-on-year decrease of 82.72%; revenue from technical services was 59.59 million yuan, a year-on-year decrease of 41.73%; and revenue from instruments and equipment was 20.77 million yuan, an increase of 32% year-on-year. There was a marked decline in performance in 2023, mainly due to changes in external policies and the market environment, which led to a sharp decline in demand for testing materials and terminal products related to public health prevention and control in the downstream market. The company's business revenue declined sharply, leading to a sharp decline in the company's overall revenue scale.

2024Q1 Regular business is growing steadily, and international business is gradually improving. After the 2023 layout, the company's life science business extracts new product lines, such as cells, and proteins, and the product matrix has been further improved. With the existing mature sales system, customer unit prices and market coverage have increased rapidly, and sales revenue from the 2024Q1 regular business has increased significantly. With the continuous optimization of business processes and the gradual improvement of marketing networks and supply chain construction, the number of effective customer visits and global delivery capabilities has been effectively improved, and international business sales revenue has increased significantly over the same period last year.

Give it an “gain” rating. Based on steady growth in regular business and gradual improvement in international business, EPS is expected to be 0.26/0.60/0.82 yuan in the next three years, giving it an “increase in weight” rating.

Risk warning: Business structure changes are at greater risk, industry competition increases risk, R&D falls short of expectations