Matters:

Recently, the company announced that it plans to acquire a holding of Shanghai Yuanshi Instrument Co., Ltd. (Shanghai Yuanshi) through an agreed transfer and hold 70% of Shanghai Yuanshi's shares.

Commentary:

Shanghai Yuanshi is deeply involved in the field of industrial scientific analytical instruments. Established in 2008, Shanghai Yuanshi is a high-tech enterprise specializing in R&D, production, sales and service of laboratory scientific instruments. Its main products at this stage are UV/VIS spectrophotometers, microwave digesters, TOC total organic carbon analyzers, atomic absorption spectrophotometers, centrifuges, and ultra-microscopic spectrophotometers. Shanghai Yuanshi attaches great importance to technological innovation. Through independent research and development, it has mastered many core technologies, and has obtained many national patents and software certificates. Its core product, UV spectroscopy equipment, is strong and is at an advanced level among domestic instruments.

The company officially entered the scientific analytical instrument circuit through mergers and acquisitions. Haier Biotech started with the biomedical low temperature storage business, mainly engaged in R&D, production and sales of biomedical low temperature storage equipment. In recent years, the company has also accelerated the horizontal expansion of the storage business to the non-storage business. In '23, the company's non-storage business revenue accounted for 38%, and 24Q1's non-storage business revenue accounted for 39%, which effectively supported the company's performance.

After completing the acquisition of Shanghai Yuanshi Holdings, the company is expected to officially enter the scientific analytical instrument circuit and further expand its non-storage business. Shanghai Yuanshi, which the company plans to acquire this time, mainly focuses on spectrophotometers in scientific analytical instruments. We believe that in the future, the company will not rule out the possibility of further expanding the business of other scientific analytical instruments such as mass spectrometers and chromatographs.

The equipment renewal policy is expected to increase procurement of medical equipment products such as scientific analytical instruments. On March 13, 2024, the State Council issued the “Action Plan to Promote Large-scale Equipment Renewal and Consumer Goods Trade-In”, which clarifies 20 key tasks in 5 areas and proposes that by 2027, the scale of equipment investment in industry, agriculture, construction, transportation, education, cultural tourism, medical care and other fields should increase by more than 25% compared to 2023. According to the instrument information network, the country's major platforms used about 120,000 major instruments and equipment from 1955 to 2020. The average period of use of instruments and equipment on major national platforms was 10.1 years. Among them, instruments and equipment that have been in use for more than 10 years totaled about 50,000 units, accounting for about 40% of the total number. Major national instruments and equipment have broad potential renewal needs. In the future, with the implementation of large-scale equipment renewal policies, it is expected to increase procurement of medical equipment products such as scientific analytical instruments.

Investment advice: We keep our profit forecast unchanged. We expect the company's net profit to be 5.0, 61, and 750 million yuan in 24-26, with year-on-year growth rates of +22.2%, +23.5%, and +21.7%, respectively. Corresponding PE is 26, 21, and 17 times, respectively. According to DCF model estimates, the company was given an overall valuation of 16 billion yuan, corresponding to a target price of about 50 yuan, maintaining a “recommended” rating.

Risk warning: 1. The release of downstream market demand for biomedical cryogenic storage did not meet expectations; 2. Revenue from the IoT business and biosafety business did not meet expectations; 3. The progress of globalization fell short of expectations.