Incidents:

On August 28, 2024, the company released its 2024 interim report. In the first half of 2024, the company achieved operating income of 0.649 billion yuan, an increase of 13.70% over the previous year; achieved net profit of 16.16 million yuan, turning a year-on-year loss into a profit; realized net profit deducted from non-return to mother of 15.29 million yuan, and the loss margin narrowed. Looking at a single quarter, in Q2 2024, the company achieved operating income of 0.347 billion yuan, a year-on-year increase of 29.37%, an increase of 15.30% over the 2024 Q1; achieved net profit of 10.94 million yuan, turning a year-on-year loss into a profit; and realized net profit of 0.66 million yuan after deducting non-return to mother.

Overall performance improved markedly, and all divisions operated steadily.

H1's overall performance improved significantly in 2024: From the revenue side, according to the company's official account, if the impact of COVID-related revenue for the same period of the year was excluded, H1's regular business revenue increased by about 21% year on year; from the profit side, H1 had already turned a loss into a profit in 2024. Considering the amortization expenses of the equity incentive plan, we speculate that the actual operating profit achieved by the company may be more impressive. Judging from the organizational structure, the company's various divisions are operating steadily.

1) Life Science Division: More than 160 new products were introduced on H1 in 2024. As of the 2024 interim report, the company has developed more than 1,500 biological reagents. In 2024, the regular business revenue of the H1 Life Sciences Division increased by about 18% year-on-year.

2) In-vitro Diagnosis Division: In 2024, H1 obtained 6 new Class II medical device certificates and 5 new medical device registration certificates, integrating high-quality channel resources. As of the interim report, the total number of cooperative channel vendors was about 350, and there were more than 2,800 end customers. In 2024, the regular business revenue of the H1 In Vitro Diagnostics Division increased by about 32% year-on-year.

3) Biomedical Division: Launched the simeglutide supply chain solution. The key enzyme raw materials have been scaled up and produced at 5,000 L. Among them, the batch production capacity of 29 peptide intermediates can reach more than 30 kg, and the annual production capacity can reach several tons. It has become the main supplier of enzyme ingredients upstream in the domestic industry chain.

4) Microfluidic Control Division: A new division was established. Based on the self-developed fully automatic medical PCR analysis system LogiCore, H1 successfully developed a joint test kit for upper respiratory tract infections in 2024 and obtained CE certification from the European Union.

5) International Business Division: Covering more than 60 countries or regions, setting up 10 subsidiaries, and continuously improving global delivery capabilities. In 2024, H1 achieved revenue of 41.08 million yuan, an increase of 143.82% over the previous year. Among them, sales in North America, Europe, Southeast Asia and other regions increased by multiple times over the same period last year.

The cost reduction and efficiency increase are significant, and it is expected that the overall loss will be turned into a profit.

The company continues to promote cost reduction and efficiency in daily operations. The overall gross margin of H1 in 2024 was 70.74%, slightly lower than H1 in 2024, and basically stable compared to H2 in 2023. Among them, the overall gross margin for Q1 2024 and Q2 was 70.47%, respectively. In 2024, H1's sales expenses were 0.218 billion yuan, management expenses were 0.109 billion yuan, and R&D expenses were 0.142 billion yuan. Compared with H1 in 2023 and H2 in 2023, there was a further reduction. Among them, the amount of expenses was basically stable during Q1 2024 and Q2 2024. Looking ahead to the second half of 2024, it is expected that the overall loss will be turned into a profit as revenue volume climbs further.

Alzheimer's diagnostic products have been approved and will soon be commercialized.

As aging worsens, Alzheimer's (AD) has become a hot topic of social concern. Considering the progressive characteristics of the disease, early diagnosis of patients is particularly important. With the advantage of raw materials, the company's self-developed Alzheimer diagnostic reagent products can achieve stable detection at the Apiq level, and the sensitivity has reached the leading level in China. In April 2024, a total of 6 test reagents, Aβ1-40, Aβ1-42, p-Tau 217, p-TAU 181, NFL, and GFAP, were approved for Class II medical device registration certificates, becoming the most certified domestic reagent manufacturer to detect AD core biomarkers through blood test samples based on chemiluminescence platforms. Among them, the Aβ42/40 index is the first chemiluminescence index in China, and p-TAU217 and NfL are exclusive in China. In 2024, H1 completed the development, admission and listing of 6 indicators. As of the interim report, it had initiated the installation admission process at nearly 100 grade hospitals or scientific research institutions, and also carried out extensive basic marketing work to cooperate with the full listing, including channel promotion, academic conferences, personnel training, etc., to lay a solid foundation for the rapid promotion and expansion of subsequent products. We believe that Alzheimer's has characteristics such as high incidence rate and difficulty in early diagnosis. The company's AD series diagnostic products effectively address clinical pain points, have leading technical strength, and are expected to quickly usher in commercialization.

Investment advice:

We expect the company's revenue from 2024 to 2026 to be 1.563 billion yuan, 1.915 billion yuan, and 2.323 billion yuan, respectively, and net profit to mother of 0.098 billion yuan, 0.233 billion yuan, and 0.346 billion yuan, respectively. The corresponding PE valuations are 79.1 times, 33.2 times, and 22.3 times, respectively. Considering that the company is in a critical period of turning losses into profits, we base our valuation on the 2025 profit forecast. The target price for 12 months is 23.20 yuan, which is equivalent to a dynamic price-earnings ratio of 40 times that of 2025, giving the company a buy-A investment rating.

Risk warning: Risk of increased competition in the industry; cost reduction and efficiency falling short of expectations; commercialization of new industries falling short of expectations; risk of R&D failure.