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 to mother of 0.08 billion yuan (+14.71%), deducted 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: 2024H1 generated an amortization of equity incentive expenses of 0.017 billion yuan, and achieved net profit of 0.161 billion yuan (+26.78%) and non-net profit of 0.149 billion yuan (+36.13%) after deducting the impact of equity incentive expenses (without considering income tax effects). The performance was in line with previous market expectations. We believe that in the context of the medical industry rectification, the company mainly benefited from the continuous return of out-of-hospital inspections to the hospital. Looking at the revenue structure, the company's test 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 approved exclusively 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 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%), and international sales and pharmaceutical business achieved operating income of 0.13 billion yuan (+26.51%). ROS1 and PCR-11 gene products were approved and covered by local medical insurance in Japan and other countries. 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 cancer incidence increases, and the development of new targets/new drugs/new treatments, the penetration rate of rigid testing demand may continue to increase, thereby driving the company's domestic and overseas business to maintain rapid growth. Investment suggestions: 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. We expect the company's net profit to be 0.325/0.399/0.481 billion yuan respectively in 2024 to 2026, up 24.44%, 22.51%, 20.56% year-on-year, and EPS of 0.82/1.00/1.21 yuan respectively. The current stock price corresponding to 2024-2026 PE is 23/19/16 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.