Incident: The company released the 2023 annual report and the 2024 quarterly report. Overall, the annual revenue was 1,092 million yuan (+31%), and the molecular block revenue was 945 million (+29%), which matched the overall revenue growth rate; the revenue from scientific research reagents was about 146 million (+47%). Overseas revenue of about 557 million (+37%) was achieved in '23, which is higher than the apparent revenue growth rate, contributing to the main revenue growth rate. The corresponding gross profit margin of the business is 48.33%, which is higher than the domestic gross profit margin of nearly 17 pcts, indicating that overseas markets are expanding smoothly, and the product penetration rate is expected to increase further. On a quarterly basis, 24Q1 revenue was 263 million (+4%), but decreased by 8% month-on-month; net profit after deducting non-return net profit of 0.25 million yuan (-35%), net profit improved month-on-month.

Comment:

Judging from business development: By the end of '23, the company had 112,000 kinds of products in stock. Compared with the end of '22, the company had 95,000 kinds in stock and 103,000 in '23. The company's categories continue to improve, making it easier to meet the needs of drug development customers. Starting from the US market, the company has now expanded to the core area of new drug research and development, and has established regional centers in various countries such as Europe and India; domestic regional centers have been set up in Shanghai, Shenzhen, Tianjin, Chengdu and Wuhan to ensure that products are delivered to customers as quickly and efficiently as possible to fully meet customer needs.

Judging from operating efficiency: After experiencing management changes, we can clearly observe the company's steady development. Mainly reflected in (1) there was no significant increase in inventory during the quarter, with inventory remaining at around 700 million yuan, and spot management continued to be optimized; (2) monetary funds remained stable, accounts payable declined significantly, accounts receivable slowly increased, and net operating cash flow in 23Q4 and 24Q1 was drastically corrected; (3) 24Q1 management expenses and sales expenses all declined significantly month-on-month. The trend of fee control is obvious, and subsequent operating profits are expected to increase.

Profit forecast and investment rating: As the company's inventory and spot turnover efficiency improve and operating efficiency continues to be optimized, I am optimistic about the company's long-term development. We expect revenue for 2024-2026 to be $1,319/$1,56.23 billion, with growth rates of 20.8%/18.8%/16.4%, and net profit to mother of $1.32/1.65/198 million, respectively, with growth rates of 39.3%/38.3%/37.3%. The corresponding EPS for 2024-2026 was 1.45/1.82/2.18 yuan, respectively, and PE was 23/18/15 times, maintaining the “buy” rating.

Risk factors: New product development progress falls short of expectations; customer expansion falls short of expectations, new orders fall short of expectations, and market competition increases risk.