Key points of investment
On April 13, 2024, the company disclosed the 2023 annual report and the 2024 quarterly report. The 2023 operating income was 2.02 billion yuan, up 3.97% year on year; net profit to mother was 178 million yuan, up 0.47% year on year. Among them, Q4's revenue in a single quarter was 573 million yuan, up 2.18% year on year; net profit to mother was 53 million yuan, down 18.02% year on year.
2024Q1's revenue was 468 million yuan, up 6.32% year on year; net profit to mother was 27 million yuan, up 21.40% year over year. The year-on-year growth recovery trend is remarkable. We believe that with the gradual completion of platform upgrades and the expansion of overseas channels, revenue growth is expected to gradually accelerate in 2024.
Growth: Overseas expansion continues, and revenue is expected to accelerate in 2024. Overseas expansion is progressing steadily, opening up the growth ceiling. In 2023, the company's revenue from Hong Kong, Macao, Taiwan and overseas regions was 985 million, up 22% year on year (faster than the company's overall growth rate), accounting for 49.22% of revenue, up 7.3 pct year on year. Based on the 3 overseas laboratories in the US, Singapore and the UK, the company will continue to lay out new localized laboratories globally in 2023-2024. In December 2023, Novo Zhiyuan opened a new laboratory at the Munich Biotechnology Innovation and Entrepreneurship Center. In January 2024, Novo Zhiyuan officially announced the opening of a new laboratory in Japan Laboratories, the global localization strategy is expected to continue to strengthen the company's overseas service capabilities, and is expected to drive the company's overseas revenue to continue to grow at a high rate and open up the revenue ceiling.
Domestic growth is slightly lower, but revenue recovery can be expected in 2024 as platforms switch and cost control are added. Affected by various aspects such as platform switching, economic environment and competitive landscape in 2023, the company's revenue in mainland China fell 9.02% year on year, and the growth rate declined significantly. We believe that in 2024, with the gradual recovery of domestic research demand, the completion of platform switching, and cost advantages brought about by the company's automated production lines and new upstream equipment replacement, etc., the domestic revenue growth rate is expected to gradually recover in 2024.
Profitability: Automation stabilizes gross profit margins, and overseas expansion brings cost increases. Gross profit margin in 2023 is relatively stable, and gross margin is expected to remain around 42% in 2024-2026. In 2023, the company's gross profit margin was 42.73%, down 1.6 pct year on year; 2024Q1 gross profit margin was 40.54%, down 0.4 pct year on year. Although gross margin decreased slightly, overall it remained at a high gross margin level above 40%. Since the launch of the company's flexible intelligent delivery system in 2020, the entire process from sample extraction to data analysis and delivery has been automated, and labor costs and delivery cycles have been drastically reduced. The company's gross margin in 2021-2023 has always been around 41%-44%, far higher than the 35% gross profit margin in 2020. We believe that with the gradual recovery of scientific research needs and the gradual construction and improvement of automated platforms, the company's gross margin is expected to maintain a high level of around 42% even when the average price of single-G sequencing declines.
Overseas expansion is still in a period of accelerated expansion. Expenses may continue to be high, and the net interest rate may remain at around 10%. In 2023, the company's net profit margin was 9.15%, down 0.28pct year on year; 2024Q1's net profit margin was 6.14%, up 0.60pct year on year. We believe that the scale effect in 2024 is offset by the cost investment period of accelerated overseas expansion. The various cost ratios may remain at a high level, and the corresponding net interest rate may remain relatively stable at around 10%.
Profit forecasting and investment advice
Based on the above assumptions, we gave that the company's revenue for 2024-2026 was 23.41/28.23/3.408 billion yuan, respectively, up 16.93%, 20.60%, and 20.70% year-on-year; 2024-2026 net profit to mother was 2.17/2.79/335 million yuan, respectively, up 21.78%, 28.47%, and 20.12% year-on-year respectively. The corresponding EPS was 0.52/0.67/0.80 yuan, corresponding to 31 times PE in 2024, maintaining the “increase in holdings” rating .
Risk warning
Risk of overseas expansion falling short of expectations; risk of demand fluctuation; risk of worsening industry competition