The performance was in line with expectations, and the profit performance was impressive after deducting equity incentive fees. With 2024H1, the company achieved operating income of 0.54 billion yuan, +18.4% year on year; achieved net profit of 0.14 billion yuan, +13.5% year over year, excluding the amortization impact of equity incentive expenses (not considering income tax effects), and realized net profit to mother of 0.16 billion yuan, +26.8% year over year, net profit of 0.15 billion yuan after deducting net profit from mother, +36.1% year over year. Looking at regional segmentation, domestic sales revenue was 0.41 billion yuan, +16.0% year over year. In-hospital compliance advantages were prominent, and the leading position in the industry was stable; international sales and pharmaceutical companies' business revenue was 0.13 billion yuan, +26.5% over the same period last year. The international market was developed at an accelerated pace, and cooperation with pharmaceutical companies expanded effectively. Looking at the business split, revenue from test reagents was 0.45 billion yuan, +16.8%; revenue from testing services was 0.03 billion yuan, -28.0% year over year; revenue from drug clinical research services was 0.06 billion yuan, +136.1% year over year.

R&D output is efficient, promoting pipeline marketing and cooperative innovation. The company attaches great importance to technological innovation. Year-round R&D investment accounts for more than 15% of current revenue. Currently, the company has independently developed and approved 27 types of cancer genetic testing products in China, with a competitive advantage of multiple technologies and multiple targets. In terms of new products, real-time quantitative fluorescence PCR analyzers were approved for domestic marketing in June 2024, with double throughput to improve detection efficiency, and 7 Class III in vitro diagnostic reagent products, including IDH1/IDH2 mutant gene combination test kits, have submitted applications for NMPA registration and are expected to be certified and listed one after another. In terms of cooperation, cooperation was reached with Boehringer Ingelheim to screen and identify patients with non-small cell lung cancer (NSCLC) most likely to benefit from targeted therapies in China, and Schweier cooperated to develop diffuse glioma IDH1/2 companion diagnostic reagents in China, deepening cooperation with accompanying diagnosis and expanding innovative business areas.

The gross margin is stable, moderate and positive, and the expense ratio is affected by the amortization of equity incentive expenses. 2024H1, the company's gross profit margin was 85.2% (+1.5pct year on year), and profitability continued to increase; sales expenses ratio 29.5% (y-o-1.9 pct), management expense ratio 8.1% (y-0.4 pct year over year), R&D expenses ratio 19.6% (y-0.5 pct year on year). Although affected by amortization of equity incentive costs, sales, management and R&D expenses continued to be controlled except for management expenses.

According to the 2024 semi-annual report, we lowered the revenue growth rate and raised the gross profit margin to adjust the 2024-26 net profit forecast to be 3.03/3.89/4.63 (the original forecast was 3.06/3.78 billion for 24-25) billion yuan. According to comparable companies, the corresponding target price was 26.60 yuan for 24 years, and the corresponding target price was 26.60 yuan.

Risk warning

New product promotion falls short of expectations, overseas geopolitics influence international expansion, pharmaceutical companies' cooperative business progress falls short of expectations, etc.