Introduction to this report:

The company continues to increase R&D investment and assembly line market promotion. At the same time, it is also continuously improving management efficiency, reducing costs and increasing efficiency. As the share of independent products increases, its performance has grown steadily and maintained an increase rating.

Key points of investment:

Maintain an increase in holdings rating. Maintain the 2024-2026 EPS forecast of 0.71/0.86/1.05 yuan, maintain the target price of 17.27 yuan, corresponding to 2024 PE 24X, and maintain the holdings increase rating.

The performance was in line with expectations. The company achieved operating income of 1.279 billion yuan (-7.37%), net profit of 0.202 billion yuan (+15.38%), net profit of 0.199 billion yuan (+11.49%), and operating cash flow of 0.213 billion yuan (-48.09%) in H1 in 2024. After deducting damage from public health emergency products in the same period in 2023, net profit remained flat year-on-year, and overall performance remained stable, and the performance was in line with expectations. Among them, Q2 achieved operating income of 0.663 billion yuan (-5.93%), net profit attributable to mother of 0.081 billion yuan (+40.32%), and deducted non-net profit of 0.081 billion yuan (+39.45%).

The business structure has been optimized, and the proportion of independent products has been further increased. The company continues to accelerate the pace of divestment of agent products and the restructuring of its own product distribution system. Steady growth of independent products and structural improvements drive steady growth in the company's performance. 2024H1 independent product sales revenue is 0.932 billion yuan (+7.61%), gross profit margin 72.42% (+1.54pct), agent product sales revenue 0.334 billion yuan (-32.69%), gross profit margin 13.68% (-7.75pct). The share of revenue from independent products increased from 37.73% in 2019 to 72.91%, and the net profit contribution increased from 75.27% in 2019 to 87.24%. Among them, revenue from H1 immunization reagents increased by about 15% year on year, revenue from temporary testing reagents increased by about 30% year on year, and revenue from biochemical reagents decreased by about 11% year on year. The growth rate of revenue and number of tests for independent products increased in Q2 compared to Q1.

The new product was approved, and assembly line promotion successfully led to the increase in reagent volume. The 2024H1, a high-speed instrument with direct chemiluminescence luminescence and immunoluminescence analyzer I 6000, and the biochemical platform high-speed instrument fully automatic biochemical analyzer C 2000 have obtained product registration certificates, and the product line has been further enriched. In the long run, the number of diagnostic instruments in the market and effective use of diagnostic instruments has driven continuous growth in performance. The company vigorously promoted intelligent inspection and analysis lines for all laboratories and collaborated with standalone terminals installed on various platforms. H1's large-scale instruments and assembly line market-end shipments reached 2301 units (strips), including 109 non-assembly lines and 110 blood flow lines. Instruments introduced into the terminal market will continue to grow in reagent sales. H1's independent product reagent sales increased by 23.4% year-on-year, achieving sales revenue of 0.859 billion yuan ( +5.9%). The lower sales revenue growth rate than the sales volume growth rate is mainly due to price changes brought about by the gradual implementation of collection policies and adjustments to the company's distribution system.

Risk warning: New product launches and promotions fall short of expectations; risk of price reduction in product collection