Revenue for the first quarter of 2024 increased 19.5% year over year, and net profit to mother after deducting equity incentive expenses and non-recurring profit and loss performed well. The first quarter of 2024 was 233 million (+19.53%), net profit attributable to mother was 64 million (+12.01%), after deducting non-return net profit of 57 million yuan (+26.44%). Equity incentive amortization expenses of 8.42 million were calculated in the first quarter. Excluding the impact of equity incentive expenses (without considering the impact of income tax), net profit due to mother increased 26.7% year on year, and net profit after deducting non-return to mother increased 45.1% year on year. The company continues to promote product registration certification and hospital compliance, and continues to consolidate its leading position in the industry under the new situation in the domestic medical industry. It is one of the few profitable enterprises in the field of oncology genetic testing that can continue to grow steadily.

The company has a well-stocked innovative R&D pipeline and is steadily expanding its international business. Domestically, the company's products such as PCR-11 gene, IDH, and HER2/er/PR are under NMPA approval, and HRD products are applying for innovative medical devices. The immunohistochemical product line actively cultivated by the company focuses on CDx (such as c-Met, HER2, Claudin 18.2, etc.) of tumor ADC drugs, and also covers routine immunohistochemical targets for common tumors, as well as automated stainers, self-produced secondary antibody reagents, and supporting peripheral reagents. The company's PD-L1 products have completed pre-testing and admission work in more than 100 hospitals, laying a good foundation for the subsequent development of the immunohistochemistry market. On the overseas side, the company has wholly-owned subsidiaries in Singapore, Hong Kong, and Canada, and a European logistics center in the Netherlands. It has formed localization teams in key overseas markets such as Singapore, Japan, Europe, Latin America, and the “Belt and Road” to consolidate the marketing system in East Asia and Europe, and gradually expand into Southeast Asia, the Middle East, Africa, Latin America, etc. Multi-pipeline products such as lung cancer, bowel cancer, gynecological tumors, endocrine tumors, and pan-cancer types have been newly approved by countries and regions such as the European Union, Thailand, Indonesia, and Colombia.

Gross margin has been rising steadily, and management and R&D expense rates are affected by equity incentives and amortization. The gross margin for the first quarter of 2024 was 84.46% (+0.59pp); sales expenses ratio 28.05% (+0.38pp); management expenses ratio 8.66% (+1.06pp), R&D expenses ratio 20.73% (+1.78pp), and financial expenses ratio -1.40%.

The management and R&D expense ratio is mainly affected by the amortization of equity incentives. The change in financial expenses is mainly an increase in interest income from time deposits; the net interest rate after deduction is 24.43% (+1.33pp). The net operating cash flow was 81 million (+19.27%), and the ratio to net profit due to mother reached 126%. The cash flow situation was good.

Investment advice: Maintaining profit forecasts, net profit due to mother for 2024-2026 is expected to be 326/4.05/495 million, up 24.8%/24.1%/22.3% year-on-year, and the current stock price corresponds to PE 25/20/17 times. Ed Biotech is a leading enterprise in the field of accurate tumor diagnosis. It has built a comprehensive companion diagnostic product system from targeted therapy to immunotherapy. It is expected to share the dividends of the times for precise tumor treatment. At the same time, the products will successfully go overseas, accelerate the development of international markets, have broad scope for medium- to long-term development, and maintain a “buy” rating.

Risk warning: risk of price reduction in collection; risk of overseas sales and promotion; geopolitical risk; risk of market competition; product development falling short of expectations.