Core views

The company's non-COVID-19 self-production revenue for the first half of 2024 exceeded expectations, and the profit side was in line with expectations. In the short term, the impact of the company's high base is basically clear since 24Q2, and the apparent performance is expected to improve. In terms of routine business, the company's installed capacity has increased rapidly, which is expected to continue to drive growth in reagent sales, and the regular business is expected to continue to maintain a high growth trend. At the same time, the company continues to increase its efforts to reduce costs and increase efficiency, and the net profit margin returned to mother in the second half of the year is expected to increase compared to the first half of the year. In the medium to long term, the company's overseas business expansion is progressing rapidly. At the same time, the company continues to increase investment in R&D, and the product matrix is gradually being improved. We are optimistic about the company's future internationalization and platformization potential.

occurrences

The company released its 2024 mid-year report

In the first half of 2024, the company achieved operating income of 0.96 billion yuan, a year-on-year decrease of 10.69%; net profit to mother of 0.173 billion yuan, an increase of 22.25% year on year; net profit after deducting non-return to mother of 1.6.1 billion yuan, an increase of 25.85% year on year. Basic earnings per share were 0.30 yuan/share.

Brief review

2024Q2 Non-COVID-19 self-generated revenue exceeded expectations, and the profit side was in line with expectations. In the first half of 2024, the company achieved operating income of 0.96 billion yuan, a year-on-year decrease of 10.69%; net profit to mother of 0.173 billion yuan, an increase of 22.25% year on year; net profit after deducting non-return to mother of 1.6.1 billion yuan, an increase of 25.85% year on year. According to calculations, in the second quarter of 2024, the company achieved operating income of 0.529 billion yuan, an increase of 27.41% year on year; net profit to mother 0.107 billion yuan, up 77.45% year on year; net profit after deducting non-return to mother 0.104 billion yuan, an increase of 131.58% year on year.

The impact of the company's high base in the second quarter of 2024 was eliminated, and apparent revenue returned to higher growth. As the company's R&D investment decreased and measures such as cost reduction and efficiency were promoted, 24Q2 research

The cost ratio and sales expense ratio declined significantly, and the company's net profit to mother grew rapidly in 24Q2.

By business, in the first half of 2024, the company's non-COVID-19 revenue was 0.96 billion yuan, an increase of 31.89% over the previous year. The revenue growth of the non-COVID-19 self-production business exceeded expectations, and both domestic and foreign businesses achieved relatively rapid growth. Its revenue from the non-COVID-19 self-production business in China was 0.688 billion yuan, up 42.69% year on year, the revenue from the overseas non-COVID-19 self-production business was 0.102 billion yuan, up 52.28% year on year, and agency revenue was 0.152 billion yuan, down 9.92% year on year. In terms of domestic business, the company's “special admission, routine release” strategy has had obvious results. The company's installed capacity has steadily increased, and reagent revenue for routine projects has increased rapidly. At the same time, the company's overseas business expansion is progressing rapidly, the overseas local workforce continues to grow, and localization construction continues to accelerate, driving the rapid growth of overseas business.

The “featured admissions and routine projects” strategy has achieved remarkable results. The installed capacity has increased steadily. In the first half of 2024, the company added 638 new chemiluminescence instruments installed domestically, including 301 stand-alone 600-speed iFlash 3000G installations, accounting for 47.18% of the new domestic chemiluminescence instruments. The proportion of mainframes continues to increase, laying a good foundation for reagent volume. Currently, the company's own products cover more than 5,600 domestic terminal medical institution customers, and H1 will increase by more than 340 in 2024. The number of tertiary hospitals covered by its own products is over 1,590, including more than 1,200 grade 3 A hospitals, and the coverage rate of the number of grade 3 A hospitals nationwide is over 70%. The company's “special admission, routine dosage” strategy has achieved remarkable results. In the first half of 2024, the company's revenue for eight pre-operative diagnostic reagents, tumor markers, thyroid function and myocardial markers increased 52.48% year on year, and the company's autoimmune diagnosis business also achieved rapid growth. 2024H1 autoimmune diagnosis business revenue increased 37.24% year on year. Among them, chemiluminescence autoimmune diagnosis revenue increased 46.23% year on year.

Overseas localization construction continues to increase, and is expected to maintain rapid growth in the first half of 2024. In the first half of 2024, the company added 532 new chemiluminescence instruments installed overseas, an increase of 43.40% over the previous year. Among them, a total of 45 stand-alone 300-speed chemiluminescence instruments were added, an increase of 275% over the previous year. In 2024, the company actively built and optimized a localized service network, and achieved continuous growth of the overseas local workforce. New Southeast Asia service points and Cairo training base will soon be put into operation. Local service offices in the Asia-Pacific region have been put into operation one after another, and localized cooperation has been carried out with various partners such as the CIS, South Asia, and the Middle East. With the continuous increase in overseas installed capacity and the continuous improvement of overseas channel layout, overseas business is expected to maintain a rapid growth trend.

R&D investment continues to be high. The self-development line was approved to help domestic companies invest 0.155 billion yuan in R&D in the first half of 2024, an increase of 8.79% over the previous year. Among them, R&D investment in microfluidic control, gene sequencing, multiple flow fluorescence testing, and antigen antibody raw materials was 0.062 billion yuan, accounting for 39.60% of R&D investment. In the first half of 2024, the IT LaMax laboratory intelligent automated assembly line system independently developed by the company was approved for domestic registration. The assembly line speed can reach 1200 sample tubes/hour, and the key components have been produced nationwide, providing users with a full-scenario smart laboratory overall solution, which is outstanding compared to imported assembly lines. In addition, the iBC 900 fully automatic biochemical analyzer was certified by international CE registration in the first half of the year, and the iBC 2000 fully automatic biochemical analyzer and the company's genetic sequencer are being registered for testing. In terms of reagents, in the first half of 2024, the company added 13 new test reagent projects to obtain registration certificates at home and abroad. They are all chemiluminescence testing projects, including 6 infertility tests, 1 free of pemphigus, and 1 liver function. The company's testing menu continues to be rich, and the instrument product matrix is gradually being improved. We are optimistic about the company's future platform-based development.

The 24Q2 R&D and sales expense ratio declined, and the net operating cash flow improved significantly year-on-year in the first half of the year. The gross margin of the company's main H1 business in 2024 was 61.94% (+ 12.58pp), of which the comprehensive gross profit margin ratio of the non-COVID-19 self-produced business was 69.95% (+3.87pp). The overall increase in gross margin was mainly due to a sharp increase in revenue from non-COVID-19 self-produced products. In the first half of 2024, the company's sales expenses ratio was 19.99% (+3.86pp), management expenses ratio 8.45% (+0.55pp), and R&D expenses rate 16.07% (+3.29pp). The year-on-year increase in cost rates was mainly due to a sharp decrease in demand for COVID-19 antigen testing products in the first half of this year. In the second quarter of 2024, the company's sales expense ratio was 19.00% (-2.49pp), the management expense ratio was 8.48% (+0.72pp), and the R&D expense ratio was 13.33% (-5.42pp). The R&D and sales expenses rate declined, mainly due to the progress of the company's efforts to improve quality and efficiency. The company's net operating cash flow for the first half of 2024 was $0.141 billion (same period last year - $0.545 billion), mainly due to an increase in cash received from sales of products and a decrease in taxes and other expenses paid during the reporting period. The company's accounts receivable turnover in the first half of the year was 77.75 days, an increase of 23.47 days over the previous year. Mainly due to the year-on-year decline in revenue due to a high base in the first half of the year, the amount of accounts receivable was at a reasonable level. The rest of the financial indicators are generally normal.

Looking ahead to the second half of the year, the non-COVID-19 self-produced business is expected to maintain rapid growth, and the profit side is expected to continue to improve in the second half of the year. As the company's installed capacity continues to increase and the continuous penetration of medium and large terminal medical institutions, as well as the acceleration of localization in overseas markets and the continuous expansion of overseas markets, the company's non-COVID-19 self-produced business revenue is expected to maintain rapid growth. In terms of profit, as the share of the company's independent products such as chemiluminescence continues to rise, gross margin is expected to continue to rise. At the same time, the company is expected to further strengthen cost control in the second half of the year, and profits are expected to be released at an accelerated pace. The profit margin is expected to increase further in the second half of the year compared to Q2.

Profit forecasting and valuation

The company is a leading domestic autoimmune diagnostic reagent company. In the short term, with the rapid increase in the company's installed capacity, it is expected to continue to drive the increase in reagent sales, and the regular business is expected to continue to maintain a high growth trend. At the same time, the company continues to increase its efforts to reduce costs and increase efficiency. The net profit margin for the second half of the year is expected to increase month-on-month compared to the first half of the year. In the medium to long term, the company's overseas business expansion is progressing rapidly. At the same time, the company continues to increase investment in R&D, and the product matrix is gradually being improved. We are optimistic about the company's future internationalization and platformization potential. We expect the company's revenue for 2024-2026 to be 2.197, 2.694, and 3.255 billion yuan, respectively, with year-on-year growth rates of 7.02%, 22.62%, and 20.80% respectively, and net profit to mother of 0.474, 0.628, and 0.824 billion yuan respectively, with year-on-year growth rates of 33.51%, 32.41%, and 31.34%, respectively. Based on the closing price on September 26, 2024, the 2024-2026 PE was 25, 19, and 14 times, respectively, maintaining the “buy” rating.

Risk analysis

1) Procurement policy risk: In 2023, Anhui Province led the 25 provincial consortium to carry out centralized procurement of chemiluminescence reagents. At the end of September, some provinces began implementing them one after another, which may have an impact on the factory price of the company's products and affect the revenue and profit margin level of the company's products.

2) Market competition intensifies risk: There are many manufacturers in the IVD industry, and industry competition is gradually intensifying. It is not ruled out that some manufacturers will cut prices to expand their market share, which will affect the company's market share, leading to further intensification of industry competition.

3) Risk that R&D and registration progress falls short of expectations: The company's product line instruments such as microfluidics, assembly lines, and sequencers are still being developed, chemiluminescence reagent projects continue to expand, and there is uncertainty about the development progress of the company's instruments and reagents, which may have a certain impact on the company's performance.

4) Impact of increased medical compliance requirements: Policies such as increased compliance requirements in the medical industry may delay the bidding process, leading to a decrease in the number of instruments installed, which in turn affects reagent output.