Key points of investment

The company focuses on the field of molecular diagnosis in precision oncology medicine. It is a leading enterprise with many approved registration certificates, a complete product line, and a wide range of in-hospital channels for cancer companion diagnosis in China. In recent years, the company has continued to launch major testing products. At the same time, it has performed well in overseas market development, which is expected to contribute to increased performance.

Aging combined with increased penetration rate promotes the development of cancer concomitant testing. According to Frost & Sullivan data, the market space for associated cancer diagnosis in China is 5.7 billion yuan in 2022, and is expected to reach 11.8 billion yuan in 2026, and the CAGR will reach 20% in 2022. In the future, as the population ages, the penetration rate of superposition testing will continue to increase. At the same time, policies will help the innovative drug industry chain develop rapidly, which is expected to drive the continuous expansion of the industry. Currently, the market pattern for cancer diagnosis in China is scattered, with the total market share of the top five manufacturers reaching 30%. Leading companies rely on characteristics such as excellent product performance and channel advantages to achieve strength, and concentration is expected to increase.

Stricter LDT policy regulations encourage continued return of samples from outside the hospital

The Laboratory Self-Built Testing Method (LDT) policy facilitates the development of innovative testing products. In 2021, the State Council of China promulgated the “Regulations on the Supervision and Administration of Medical Devices”, which recognized the legality of LDT for the first time. LDT has problems such as random charges and poor supervision during clinical application. In 2022, China's National Drug Administration and Health Commission issued a notice to establish hospital LDT in 6 pilot hospitals to strengthen supervision of sending test samples. In recent years, all provinces and cities have strictly prohibited the delivery of illegal samples for testing, causing samples to continue to return to hospitals. For testing products that have been approved in the hospital, due to their compliance advantages, they are expected to meet some testing requirements.

As an industry leader, the launch of major new products combined with overseas market development continues to contribute incremental companies, which are expected to enjoy the dividends of industry growth. At the same time, the company is the most fully certified manufacturer in the field of concomitant cancer diagnosis in China, and has 27 product registration certificates. In the context of China's strong policies and regulations, the company is expected to continue to benefit. In recent years, the company has continued to launch major testing products. For example, MSI products suitable for pan-cancer testing were approved in 2023, and products such as PCR-11 genetic testing are expected to be approved this year. At the same time, the company also made major breakthroughs in overseas markets, with overseas revenue of 0.196 billion yuan in 2023, accounting for 19%. PCR-11 is included in Japan's health insurance reimbursement and is expected to contribute to increased performance.

Profits grew steadily, giving it a “buy” rating

We expect the company's 2024-2026 revenue to be 1.231/1.529/1.867 billion yuan, up 18%/24%/22% year on year, net profit to mother of 0.31/0.392/0.489 billion yuan respectively, up 19%/27%/25% year on year, EPS 0.78/0.98/1.23 yuan/share, respectively, corresponding to a three-year CAGR of 23%. The company is a leading oncology diagnosis enterprise in China. It has advantages in products, channels, etc., and is expected to become a strong company. Referring to the valuation of comparable companies in the same industry and considering the company's growth, we covered it for the first time and gave it a “buy” rating.

Risk warning: New product approval falls short of expectations, overseas market development falls short of expectations, and market competition increases risk.