Performance growth was steady, and profit growth was higher than revenue after excluding equity incentives. In the first half of 2024, the company achieved revenue of 0.543 billion (+18.4%), net profit due to mother 0.144 billion (+13.5%), and net profit not attributable to mother 0.132 billion (+20.7%). In the second quarter, we achieved revenue of 0.31 billion (+17.5%), net profit of 0.08 billion yuan (+14.7%), and net profit after deducting non-return to mother 0.075 billion (+16.7%). Despite the complex and changing macroeconomic environment and high base for the same period, we achieved steady growth. Excluding the impact of amortization of equity incentive expenses (without considering income tax effects), net profit attributable to mother for the first half of 2024 was 0.161 billion yuan (+26.78%), after deducting non-attributable net profit of 0.149 billion yuan (+36.13%).

Testing reagents have maintained good growth, and drug clinical research has been rapidly released. In the first half of 2024, test reagent revenue was 0.448 billion (+16.8%), and the gross profit margin was 90.9% (+0.4pp). As the penetration rate of rigid testing requirements continues to increase, Ed Biotech is expected to usher in broader development prospects as a compliant and leading company. Testing services are 0.032 billion (-28.0%), with a gross profit margin of 51.5% (+8.5pp). Under the trend of compliance regulations, some hospitals may prefer in-hospital testing, which will have a certain impact on the testing service business. Pharmaceutical clinical research services are 0.06 billion (+136.1%), with a gross profit margin of 63.0% (+2.0pp). With its overall advantages from R&D, production, quality control, registration to sales, the company has reached accompanying diagnostic cooperation with many well-known domestic and foreign pharmaceutical companies. Recently, it has reached new companion diagnosis cooperation with leading international pharmaceutical companies such as Boehringer Ingelheim and Schweier.

According to management standards, in the first half of 2024, domestic sales were 0.413 billion (+16.0%), and international sales and BD business were 0.13 billion (+26.5%), promoting the localization layout of the international market and increasing influence.

The gross margin has increased steadily, and high investment in R&D has been maintained. The gross margin for the first half of 2024 was 85.2% (+1.5pp), sales expenses ratio 29.5% (-1.9pp), R&D expenses ratio 19.6% (-0.5pp), administrative expenses ratio 8.1% (+0.4pp), financial expenses ratio -1.9% (+3.2pp), and net profit margin 26.5% (-1.1pp). R&D investment in the first half of the year was 0.106 billion (+15.6%), accounting for 19.6% of revenue. High-intensity R&D investment became the driving force for continuing to launch innovative products. Net operating cash flow for the first half of the year was 0.139 billion yuan (-2.7%), with a ratio of 96.7% to net profit attributable to mother, maintaining a high quality and healthy state.

Investment advice: Considering the impact of the macro environment and business investment, the profit forecast is slightly lowered. The estimated net profit for 2024-26 is 0.319/0.393/0.482 billion yuan (the original was 0.326/0.405/0.495 billion in 2024-26), an increase of 21.9%/23.2%/22.7% year-on-year. The current stock price corresponds to PE 23/19/15 times PE. Ed Biotech is a leading enterprise in the field of accurate tumor diagnosis. It has built a comprehensive companion diagnostic product system from targeted therapy to immunotherapy. It is expected to share the dividends of the times for precise tumor treatment. At the same time, the products will successfully go overseas, accelerate the development of international markets, have broad scope for medium- to long-term development, and maintain a “superior to the market” rating.

Risk warning: risk of price reduction in collection; risk of overseas sales and promotion; geopolitical risk; risk of market competition; product development falling short of expectations.