Key points of investment

Focus on POCT, strong influence in the international market: Aotai Biotech focuses on R&D, production and sales of in vitro diagnostic reagents. Its main product lines include infectious disease testing, drug and drug abuse testing, and women's health testing. It has established markets in more than 160 countries and regions around the world, with outstanding performance in the European and American markets. In recent years, Aotai Biotech has effectively reduced production costs and promoted rapid iteration of new products through self-supply of upstream biological materials and continuous innovation in technology platforms. The company focuses on R&D investment and developed 25 new raw materials in 2023, 4 of which are domestic firsts, further enhancing competitiveness.

Focusing on three major fields, the product matrix is rich: 1) Drug and drug abuse testing: The company's various drug testing products are the first in the world, have high recognition in the European and American markets, and 14 joint inspection products have been approved this year. We expect the company's revenue from drug testing products to grow rapidly. The revenue of these products will increase 33%, 37%, and 40% year-on-year respectively in 2024-2026, that is, achieve revenue of 0.271 billion yuan, 0.371 billion yuan, and 0.52 billion yuan in 2024-2026; (2) Infectious diseases: In the post-pandemic era, the global infectious disease market continues to expand, driven by high incidence rates and auxiliary diagnostic functions. Therefore, it is assumed that the operating income of this type of product will increase by 23%, 25%, and 28% year-on-year in 2024-2026, that is, 0.339 billion yuan, 0.423 billion yuan, and 0.542 billion yuan in 2024-2026; (3) Women's health testing category: The rise in female infertility rates has triggered a surge in demand for fertility testing and diagnostic services in developing countries. Women are paying more attention to their own reproductive health.

We believe that the revenue of these products will increase by 30%, 33%, and 35% year-on-year in 2024-2026. It is estimated that the relevant business revenue for 2024-2026 will be 0.092 billion yuan, 0.123 billion yuan, and 0.166 billion yuan, respectively.

Equity incentives show confidence: company-level assessments focus on revenue and the number of domestic and foreign product registrations. The company aims to achieve revenue of 0.85 billion to 1.26 billion yuan in 2024-2026, with a compound annual growth rate of 18.6%. The total number of new domestic medical device product registration certificates approved by the company and its subsidiaries from 2024 to 2026 is not less than 25, and the total number of approved US FDA (510K certification) products from 2024 to 2026 is not less than 15 to ensure the company's continuous progress in product development and market expansion. We believe that equity incentives can further drive the company's progress and development, and at the same time demonstrate the company's confidence in future performance.

Profit forecast and investment rating: We expect the company's 2024-2026 net profit to be 0.239/0.303/0.385 billion yuan, EPS of 3.01/3.82/4.85 yuan, respectively. The P/E corresponding to the current stock price is 18.40/14.53/11.43 times, respectively. The company's drug testing 14 joint inspection products were approved in the US. The future growth is impressive. It is covered for the first time, and it has been given a “buy” rating.

Risk warning: Product volume falls short of expectations, risk of exchange rate fluctuations.