Net profit returned to mother increased 40% year-on-year in the second quarter, speeding up the divestment of agency products and reshaping the independent product distribution system. In the first half of 2024, the company achieved revenue of 1.279 billion (-7.37%), net profit due to mother 0.202 billion (+15.38%), net profit of 0.199 billion (+11.49%) after deducting non-attributable net profit; of these, revenue for the second quarter was 0.663 billion (-5.93%) and net profit to mother 0.081 billion (+40.23%). In the past two years, the company has accelerated the divestment of agent products and the adjustment of the independent product distribution system. Independent products have maintained steady growth and the revenue share has increased rapidly, and the cost advantage of independent products is far higher than that of agent products. Growth in sales and structural improvement of independent products will drive performance growth, and the net profit contribution of independent products has increased from 75.27% to 87.24% in 2019.

Sales of independent product reagents increased 23% year on year, and terminal installations for large-scale instruments and assembly lines continued to be promoted.

In the first half of 2024, revenue from independent products was 0.932 billion (+7.61%), and gross margin was 72.42% (+1.54pp); of these, revenue from independent product reagents was 0.859 billion (+5.9%), and reagent sales increased 23.4% year on year. The main reason why revenue growth was slower than sales was affected by price changes brought about by the implementation of collection policies and adjustments to the distribution system. The company vigorously promoted intelligent inspection and analysis lines throughout the laboratory and collaborated with the installation of stand-alone terminals on various platforms. In the first half of 2024, the company shipped 2301 units (strips) of large-scale instruments and assembly lines for its own products, including 109 free assembly lines and 110 blood assembly lines. The instruments installed in the terminal continued to increase reagent sales. The high-speed luminescence meter i6000 and the high-speed biochemizer C2000 obtained product registration certificates in the first half of the year, providing inexpensive and high-quality hardware options for speeding up laboratory automation and intelligence.

Profitability continues to improve, and high investment in R&D is maintained. The gross margin for the first half of 2024 was 57.00% (+3.62pp), sales expense ratio 22.49% (+1.74pp), management expense ratio 6.02% (+1.00pp), R&D expense ratio 11.30% (+1.99pp), financial expense ratio 0.58% (-0.01pp), and net profit margin 15.83% (+3.40pp). In the first half of 2024, R&D investment was 0.186 billion (+13.81%), accounting for 19.98% of independent product revenue. The company added 38 new R&D projects, completed 19 project development projects, completed 24 process/conversion projects, completed 11 raw material development projects and completed 9 raw material process conversions, further improving the self-sufficiency rate of core raw materials. The company added 27 new overseas distribution channels, covering a total of 120 countries and regions. The company actively lays out overseas marketing networks, and product registration certificates have been accelerated.

Investment advice: Maintaining the 2024-26 profit forecast, the 2024-26 net profit is expected to be 0.413/0.53/0.637 billion, a year-on-year growth rate of 32.2%/28.3%/20.2%; diluted EPS = 0.67/0.87/1.04 yuan, and the current stock price corresponds to PE = 18/14/11x. The company's business covers 9 major platforms, including biochemistry, immunology, and blood cells. New products are being launched on each platform, and the entire laboratory is vigorously promoting intelligent testing and analysis lines. At the same time, it accelerates strategic adjustments in agency business and direct sales transformation and distribution, and maintains a “superior to the market” rating.

Risk warning: the risk of price reduction in the collection of in vitro diagnostic reagents, research and development falling short of expectations, and increased competition risks.