Incident: The company released its 2024 semi-annual report. In the first half of 2024, the company achieved operating income of 0.822 billion yuan, a year-on-year increase of 0.66%, achieved net profit of 0.25 billion yuan, an increase of 3.64% over the previous year, and achieved deduction of 0.248 billion yuan in non-net profit, an increase of 3.79% over the previous year.

On a quarterly basis, the single second quarter of 2024 achieved operating income of 0.428 billion yuan, a year-on-year decrease of 3.41%, and a month-on-month increase of 8.61%; realized net profit of 0.13 billion yuan, a year-on-year decrease of 0.63%, a year-on-month increase of 7.52%, and realized deduction of 0.127 billion yuan in non-net profit, a year-on-year decrease of 2.20% and a 4.86% month-on-month increase. The company's single-quarter performance still achieved positive month-on-month growth. The year-on-year performance was under slight pressure. It was mainly affected by multiple policy factors such as diagnostic reagent collection and implementation, stricter medical reform, and DRG/DIP promotion. It is also related to the high base for the same period in 2023Q2.

The level of gross profit has been rising steadily, and sales investment optimization is obvious under policy drive. In the first half of 2024, the company's sales expense ratio was 17.97%, down 3.38pp year on year, mainly due to the company's continuous optimization and improvement in supply chain management and brand marketing measures. The management fee ratio was 8.51%, up 1.88pp year on year, mainly affected by current accrued equity incentive fees. The financial expense ratio was 2.48%, down 0.38pp year on year, and the R&D cost rate was 10.58%, 1.42pp year on year, mainly due to the company's continuous increase in R&D investment. In the first half of 2024, the company's gross profit margin was 77.33%, up 2.75pp year on year. Mainly due to the expansion of the share of high-margin business, the net profit margin was 30.37%, up 1.06 pp year on year.

Regular business is resilient, and the integrated inspection layout is advancing at an accelerated pace. In the first half of 2024, the IVD sector as a whole was disrupted by external policies, and the company's apparent growth rate slowed slightly. By business, the 2024H1 pathology business achieved revenue of 0.385 billion yuan, an increase of about 13% over the previous year, and achieved net profit of 0.165 billion yuan, an increase of about 15% over the previous year. In the first half of 2024, the subsidiary Maixin Biotech increased the capital of Longjin Biotech to reinforce the FISH pipeline and further consolidate the overall competitiveness of the pathology industry; 2024H1's inspection division revenue was about 0.437 billion yuan, down about 8% year on year, and the inspection division's profit was about 0.077 billion yuan, down about 22% year on year. The hemagglutination business is one of the company's new tracks of vigorous expansion. At present, the company has developed a variety of key test reagents and high-speed blood coagulation instruments, and has successfully entered the domestic high-end market with its high accuracy advantages. We expect the hemagglutination business to perform well in the first half of the year; the biochemical business is affected by the collection of products such as liver function and kidney function, and may be under pressure in the short term; in the field of chemiluminescence, the company has developed three instrument products and obtained 47 medical device registration certificates. It is expected that the future will gradually expand and join forces with superior biochemical and pathological businesses to gradually form a closed-loop integrated in vitro diagnostic solution.

The empowerment of Sinopharm continues to be realized, and it is expected that more national reform measures will gradually be implemented. The company is an in vitro diagnostic platform owned by Sinopharm Devices. Since 2024, it has continued to deepen collaboration with Sinopharm Group's provincial companies and top dealers at the marketing channel level to accelerate product promotion. In the first half of 2024, Sinopharm Group purchased 35.5191 million yuan of products, accounting for about 4.3% of the company's revenue in the first half of the year. At the same time, the company relied on Sinopharm's strategic planning to gradually achieve comprehensive, deep, and lasting cooperation from business docking to operational collaboration. We expect more national reform measures step by step in the future Launched to help the company build an industry-leading comprehensive diagnostic enterprise.

Profit forecast and valuation: According to financial data, we expect that the continued recovery in downstream diagnostic demand is expected to drive the company's biochemical and pathology business to maintain a rapid growth trend. Changes in regulatory policies may cause some uncertainty. The company's revenue is expected to be 1.793, 1.979, and 2.192 billion yuan in 2024-2026, up 3%, 10%, and 11% year-on-year (2.013, 2.415, and 2.895 billion yuan before adjustments); net profit to mother is expected to be 0.569, 0.678, 0.806 billion yuan, up 9%, 19% year-on-year (before adjustments of 0.601, 0.751, 0.948 billion yuan). The company's current stock price corresponds to about 13, 11, and 9 times PE from 2024-2026. Considering the upward trend in the company's biochemical and blood coagulation business, the pathological circuit continues to be booming, and new products such as chemiluminescence are expected to be rapidly released and maintain a “buy” rating.

Risk warning: Overseas cooperation falls short of expectations, marketing of new products falls short of expectations, and there is a risk that public data used in research reports may be delayed or not updated in a timely manner.