Incident: The company announced its 2023 annual report and 2024 quarterly report. The company achieved total operating income of 1,598 million yuan, yoy 4.55%, and realized net profit of 284 million yuan, yoy 34.6%; 2024Q1 achieved operating income of 348 million yuan, yoy -4.42%, and realized net profit of 106 million yuan and yoy -1.05%.

The company operates steadily, and the quality of revenue continues to improve. In the context of the downturn in the downstream aquaculture industry in '23, the company leveraged the advantages of the product matrix and grew together with multiple products. In terms of pig seedlings, the company is based on superior foot-and-mouth disease products, actively promoting non-foot-and-mouth disease products. Sales of products such as the pig round ring vaccine and round branch have increased significantly; in terms of ruminant seedlings, the company has established an image as an expert in disease prevention and control and continues to expand its leading edge; poultry seedlings continue to be integrated internally to improve quality and efficiency; and registration of new pet seedlings continues to advance. The company's gross sales margin in '23 was 59.19%, up 4.02 percentage points year on year. Net sales profit margin was 17.34%, up 4.25 percentage points year on year; net operating cash flow was 415 million yuan, up 20.36% year on year. The farming market was sluggish in 24Q1, and revenue performance declined slightly, but gross margin maintained an upward trend, cash flow improved markedly year-on-year, and the quality of the company's operations continued to improve.

Continue to promote R&D and innovation, and new products can be expected to be launched. In 23 years, the company continued to focus on R&D innovation, investing 230 million yuan in R&D, accounting for 14.39% of revenue, and laying out more than 40 new R&D pipelines over the next five years. In terms of products, the company obtained 2 new veterinary drug registration certificates during the reporting period, Brucellosis Live Vaccine (Rev.1) and Mycoplasma porcine Pneumonia Inactivated Vaccine (ZY Co., Ltd.). Vaccines such as small ruminant disease, bovine nodular skin disease, mycoplasma bovine disease, brucellosis S19, swine fever E2 protein subunits, dog bipolar, and cat triplets will be approved for marketing in the next 1-2 years, supporting the company's continued growth in performance. In terms of platform construction, the company completed verification of the efficacy and safety of the mRNA vaccine platform in multiple species during the reporting period, and the world's first animal mRNA vaccine production workshop has passed static inspection by the Ministry of Agriculture and Rural Affairs; the company cooperated with leading figures in the domestic RNA field to establish a joint development team to build an AI+ synthetic biology innovation platform. The company is firmly driven by R&D and innovation. The construction of new platforms and the continuous implementation of new products are expected to bring differentiated competitive advantages to the company.

The non-plague vaccine is progressing in multiple pipelines, and we look forward to implementation progress. The company established an integrated research and development platform for the African swine fever vaccine based on the P3 laboratory and carried out research on multiple technical routes. Among them, the Asian unit vaccine has entered the efficacy evaluation stage, production capacity construction has been completed, and the company continues to focus on production quality and cost optimization. The mRNA route, joint research and development between the company and Blue Magpie Biology is progressing smoothly, and the laboratory data is good. As a breakthrough single product in the industry, the non-plague vaccine has considerable market space. If the company's products are successfully commercialized, it is expected to contribute significantly to significant growth.

Company profit forecast and investment rating: We are optimistic about the continuous improvement of the company's operating quality and the continuous growth brought about by the launch of new products in the future. The company's net profit for 24-26 is estimated to be 3.67, 4.59, and 563 million yuan, respectively, corresponding EPS of 0.33, 0.41, and 0.50 yuan, respectively. The corresponding PE values are 27, 22, and 18 times, respectively, maintaining a “highly recommended” rating.

Risk warning: New product launches fall short of expectations, industry demand recovery falls short of expectations, animal disease risks, etc.