The revenue side of 1H24 basically met market expectations, and the loss side slightly exceeded market expectations. The company announced 1H24 performance: revenue of 1.209 billion yuan (-16.23% YoY), of which core sequencer business revenue was 1.005 billion yuan (-8.4% YoY), and net loss to mother was 0.298 billion yuan (1H23 loss 98.02 million yuan). The revenue side basically met market expectations. The loss slightly exceeded market expectations, mainly due to a decrease in revenue scale but normalized cost investment. The impact of foreign currency exchange fluctuations on overseas business.
Development trends
Due to multiple factors, the company's revenue side was under pressure during the 1H24 period, and the performance of small computer products was relatively good. During the 1H24 period, domestic research and clinical demand was weak. Combined with overseas geopolitical friction and the impact of the 2Q24 sequencer sector's high base, the company's overall business was under pressure. It is estimated that 1Q24/2Q24 achieved 4.2% growth and 16.7% year-on-year decline, respectively. The company's 1H24 sequencer sold 454 new units, setting a record high in the number of installed units sold during the same period in history, and the performance of small-scale models was relatively good.
There was a decline in gross profit in 2Q24. Combined with exchange rate fluctuations, the net profit side turned into a loss. We estimate that 1Q24/2Q24 gross margin was about 64.8%/61.9%, respectively, and 2Q gross profit declined month-on-month, but there was still an increase compared to 2Q23 (59.6%). We expect that sector gross profit may decline due to fluctuations in the new business product structure, diluting the overall profit level. Furthermore, according to the announcement, due to the continuous rise in the US dollar and euro exchange rates during the 1H23 period, 1H23 confirmed net financial income of about 0.11 billion yuan (we estimate 2Q23 was about 94.71 million yuan), while the euro exchange rate showed a downward trend during the 1H24 period, and the US dollar exchange rate trend was moderate. As a result, exchange rate fluctuations increased the year-on-year increase in exchange losses due to exchange rate fluctuations.
Strengthen overseas business layout and focus on realizing long-term competitiveness. According to the announcement, during the 1H24 period, the company officially opened its new European headquarters in Berlin, Germany as an early experience and testing base for the company's new technology and products; at the same time, the Latvian factory completed a number of quality system certifications and undertook the conversion of DNBSEQ-G400 sequencers and various sequencing reagents to complete localized production certification and overseas market supply. On 1H24, the company carried out production planning based on existing R&D centers in the US to achieve mass production of the DNBSEQ-G99 sequencer to meet the needs of American customers. The company has established 9 R&D centers, 7 production bases, 9 international warehouses, and more than 10 customer experience centers around the world, and continues to strengthen its overseas business layout. For detailed reviews, please refer to page 3 of this report for profit forecasting and valuation
Considering the pressure on revenue and profit side performance, we lowered our 2024/2025 net loss to mother of 0.216 billion yuan/profit of 16.08 million yuan to loss of 0.254 billion yuan/loss of 81.75 million yuan. Considering that the company's market position continues to improve, and its long-term competitiveness is expected to gradually be realized with demand-side recovery, the target price remains unchanged at 58 yuan (based on DCF valuation) and 49% upward space for the time being, maintaining an outperforming industry rating.
risks
Demand for downstream applications fell short of expectations, commercialization fell short of expectations due to geopolitical friction, and industry competition intensified.