Investment logic: The company has been deeply involved in the field of liver disease diagnosis and treatment for more than 20 years, and has FibroScan, the world's first clinically proven non-invasive testing instrument for liver fibrosis. With continuous breakthroughs in the development of new NASH drugs around the world, the demand for early diagnosis of NASH is expected to grow rapidly. As a non-invasive liver fibrosis testing instrument, FibroScan is widely used worldwide, has a high academic status, and is a stable leader. I am optimistic that the FibroScan GO pay-per-use model will continue to be implemented. Hundreds of units have been installed. It is expected that the launch will accelerate and launch a new round of the company's growth curve.

The first new NASH drug was approved. Many drugs are in advanced clinical stages, and demand for NASH testing is expected to grow rapidly. NAFLD has become the number one chronic liver disease in the world. The overall prevalence of NAFLD worldwide is about 25%, of which about 20% may develop NASH.

After more than 40 years of drug development, NASH had no cure until now. On March 14, 2024, Madrigal's Resmetirom became the first NASH drug approved for marketing by the FDA. At the same time, many NASH drugs under development showed excellent early clinical data. It is expected that positive post-clinical data will be released and reported for production in the future. As global NASH drug development continues to make breakthroughs, we expect demand for NASH screening and diagnosis to grow rapidly.

Recommended by academic guidelines, widely recognized clinically, FibroScan is a stable leader in non-invasive diagnosis. 1) FibroScan is the world's first non-invasive detection instrument for liver fibrosis. As the first clinically proven device for quantitative measurement of liver hardness, it is widely used worldwide, diagnosing tens of millions of patients every year. 2) FibroScan has a high academic status. It has been recommended in 180 guidelines by various global authorities such as the European Society of Hepatology and the American Society of Hepatology, and has published more than 4,200 peer-reviewed articles. 3) FibroScan has a global patent layout, continuously improves algorithm processing capabilities based on long-term accumulated clinical data, and continues to stabilize its market position. 4) Compared with blood tests and liver puncture, FibroScan has the advantages of being non-invasive, easy to operate, immediate diagnosis, and more economical, and is expected to become a routine screening and diagnosis standard for people at high risk of NAFLD and the whole population.

The pay-per-use business model continues to materialize, and FibroScan GO opens the company's growth ceiling. In 2022, Echosens launched the pay-per-use FibroScan GO to expand its application in primary hospitals and non-hepatology departments. By the end of 2023, FibroScan GO had a total of 275 units installed in Europe and the US. We believe that as the cooperative relationship between the company and multinational pharmaceutical companies continues to deepen and jointly promote early diagnosis of NASH, the launch rate of GO will further accelerate.

The pharmaceutical business is stable. In 2023, the core product Compound Turtle and Soft Liver Tablets achieved sales volume of 140 million tablets, a year-on-year decline of 23%. In 2024, the company will increase academic promotion efforts and is expected to achieve restorative growth.

Profit forecast and valuation: We expect net profit for 2024-2026 to be 204 million yuan, 312 million yuan, and 453 million yuan respectively, with growth rates of 101%, 53%, and 45% respectively. The PE corresponding to the current stock price is 67x, 44x, and 30x, respectively. Sannuo Biotech, Mindray Healthcare, and Aohua Endoscopy were selected as comparable companies. Considering the potential for growth in NASH testing demand, the company is a leading global company for non-invasive diagnosis of liver disease. The pay-per-use product FibroScan GO opens a new growth curve and is covered for the first time “Buy” rating.

Risk warning: Industry competition increases risk; Fibroscan GO launch falls short of expectations; risk of NASH drug development falling short of expectations; risk of price fluctuations of major raw materials.