Net profit to mother increased 20% year-on-year in the first quarter of 2024, and overseas business performed well. In the first quarter of 2024, we achieved revenue of $1,021 million (+16.62%), net profit attributable to mother of 426 million (+20.04%), and net profit of 399 million (+25.49%) after deducting non-return to mother. The performance slightly exceeded expectations. By region, domestic revenue increased 12.17% year on year in the first quarter, and overseas revenue increased 24.95% year on year, and overseas business became the core growth driver; by product, reagent revenue increased 26.42% year on year in the first quarter, and revenue from instrument products fell 3.86% year on year. In the first quarter, the fully automatic chemiluminescence instrument X8 achieved sales/installation of 220 units in domestic and foreign markets.

Domestic revenue is slowing in stages, and the breadth and depth of overseas business layout continues to increase. Domestic revenue slowed in the first quarter. On the one hand, routine diagnosis and treatment volume recovered after the epidemic prevention policy was adjusted in the same period last year, and the rapid increase in testing volume led to a higher year-on-year base; on the other hand, since the reform of the medical industry began nationwide, the pace of bidding activities in some public hospitals slowed down, which had a certain impact on the company's equipment admissions in the second half of 2023 and the first quarter of 2024, which in turn led to a decline in instrument revenue. Judging from the trend, domestic installed capacity showed a month-on-month improvement in the first quarter of 2024. As equipment tenders from public hospitals around the world return to a normal pace one after another, instrument installation is expected to accelerate. The company's domestic chemiluminescence instrument installation target is 2,000 units in 2024, and the total installed target of the cooperative assembly line and the self-developed SATLARS T8 assembly line is 100. The company will continue to promote the development of customers in large terminal hospitals at level 3 and above, and increase the proportion of reagent testing in level 3 hospitals. In the overseas market, the company has been divided into 45 regions. Each region uses a four-in-one model of independent marketing, after-sales, marketing and business to strengthen the linkage between product sales and after-sales personnel and improve the service quality and capabilities of regional products. The target for 2024 is 3,500 units of overseas chemiluminescence, and continuous intensive cultivation will continue.

Gross profit margin increased year over year, and profitability remained excellent. The gross profit margin for the first quarter of 2024 was 73.84% (+5.15pp), sales expenses ratio 15.61% (+1.30pp), management expenses ratio 2.87% (+0.48pp), R&D expenses ratio 9.93% (+0.43pp), financial expenses ratio -0.29% (-0.65pp), and net margin was 41.73% (+1.19pp). The increase in the share of reagent revenue and the optimization of the instrument structure further drove the increase in gross margin. Net cash flow from operating activities was 262 million (+45.73%), and cash flow remained healthy.

Investment suggestions: Domestic installations and reagent consumption in the new industry are expected to gradually recover, continuing to benefit from import substitution and breakthroughs in large terminal hospitals; overseas business is growing rapidly. The company's instrument platform is expanding to the next generation of luminescence and biochemistry, forward-looking layout of assembly lines and molecular businesses. Maintaining the profit forecast, net profit for 2024-26 is estimated to be 20.65/26.08/32.28 billion, up 24.9%/26.3%/23.8% year-on-year. The current stock price corresponds to PE 28/22/18X, maintaining a “buy” rating.

Risk warning: risk of price reduction in collection; risk of increased industry competition; risk of overseas expansion falling short of expectations; geopolitical risk; risk of falling short of expectations in new business areas.