Incident: The company released its 2024 semi-annual report. From January to June 2024, it achieved operating income of 0.543 billion yuan (+18.38%), net profit to mother 0.144 billion yuan (+13.49%), deducted non-net profit of 0.132 billion yuan (+20.72%), and operating cash flow of 0.139 billion yuan (-2.68%). 2024Q2 achieved operating income of 0.31 billion yuan (+17.53%), net profit of 0.08 billion yuan (+14.71%), net profit of 0.075 billion yuan (+16.71%) after deducting non-net profit of 0.075 billion yuan (+16.71%), and operating cash flow of 0.059 billion yuan (-22.34%). The results for the first half of the year were in line with expectations, and continued to benefit from testing back to the hospital: 2024H1 generated an amortization of 0.017 billion yuan of equity incentive expenses, and achieved net profit of 0.161 billion yuan (+26.78%) after deducting the impact of equity incentive expenses (+ 26.78%) and 0.149 billion yuan (+36.13%) after deducting non-net profit. We believe that in the context of the restructuring of the medical industry, the company mainly benefited from the continuous return of out-of-hospital inspections to the hospital. Looking at the revenue structure, the company's testing reagent business achieved revenue of 0.448 billion yuan (+16.75%) and a gross profit margin of 90.89% (+0.35pct); the testing service business achieved revenue of 0.032 billion yuan (-28.01%) and a gross profit margin of 51.46% (+8.51pct); the pharmaceutical clinical research service business achieved revenue of 0.06 billion yuan (+136.07%), and a gross profit margin of 62.95% (+2.00pct).

Based on various precision medicine technology platforms, we continue to enrich tumor detection solutions: 2024H1 invested 0.106 billion yuan (+15.62%) in R&D, accounting for 19.56% of revenue. Based on technology platforms such as PCR, NGS, IHC, FISH, etc., the company has independently developed and approved 27 tumor genetic testing products in China, covering the most important targets in precision medicine (such as EGFR, KRAS, BRAF, ROS1, HER2, RET, MET, BRCA1/2, PD-L1, MSI, etc.), and is a leading enterprise with the widest range of products in the industry. Many of these products are still exclusively approved domestically.

The scope of drug diagnosis cooperation continues to expand, and the international business continues to grow rapidly: the company has reached cooperative diagnostic cooperation with many well-known domestic and foreign pharmaceutical companies, and its product quality and corporate brand are highly recognized, and it continues to empower the world's leading pharmaceutical companies to develop clinical drugs. 2024H1's domestic sales achieved revenue of 0.413 billion yuan (+16.02%), international sales and pharmaceutical business achieved operating income of 0.13 billion yuan (+26.51%). ROS1 and PCR-11 gene products were approved and included in local medical insurance in countries such as Japan. In domestic and foreign interroom quality evaluations organized by the European Molecular Genetic Diagnosis Quality Alliance (EMQN) and the Pathological Quality Control Evaluation Center (PQCC) of the National Health and Health Commission (PQCC), the company's products have maintained excellent accuracy and extremely high usage rates for many years. As the global population ages and the incidence of cancer increases, and the development of new drugs/treatments with new targets, the penetration rate of rigid testing demand may continue to increase, which in turn will drive the company's domestic and overseas business to maintain rapid growth.

Investment advice: The company is a leading enterprise in the diagnostic industry, with remarkable production line richness and technological leadership, and the overseas market layout is gradually improving. In the future, as the competitive environment in the industry becomes clear, the company's domestic and foreign market share is expected to continue to increase as a high-quality leading enterprise that operates in compliance. We expect the company's net profit from 2024 to 2026 to be 0.325/0.399/0.481 billion yuan, respectively, up 24.44%, 22.67%, and 20.54% year-on-year. EPS is 0.82/1.00/1.21 yuan respectively. The current stock price corresponds to 2024-2026 PE is 22/18/15 times, maintaining a “careful recommendation” rating.

Risk warning: the risk that the launch of a new product falls short of expectations, the risk that the price reduction will exceed expectations, and the risk that overseas market promotion results will fall short of expectations.