Key points of investment

Performance: Revenue growth slows down, profit growth recovers

2024Q1-3 achieved revenue of 0.811 billion yuan, yoy +0.79%; realized net profit to mother of 0.084 billion yuan, yoy -26.05%.

2024Q3 achieved revenue of 0.279 billion yuan, yoy -1.14%; realized net profit to mother of 0.032 billion yuan, yoy +8.2%.

Growth: The revenue structure may continue to be adjusted. We are optimistic that long-term growth will continue. The company's revenue growth rate slowed slightly in 2024Q3, but at the same time, gross margin increased sharply. We estimate this is related to two factors: an increase in the company's share of overseas revenue and an increase in the share of high-gross products. Looking ahead, we believe that the company is a scarce company with “overseas genes” in the domestic life sciences sector. Based on the company's release after continuous upgrading of the company's warehouse layout in North America, Europe, and India, we are optimistic that the overseas side will continue to accelerate; on the domestic side, in an environment where the price war continues, we believe that the reason for the suspension of domestic revenue this year may be related to the strategic transformation of “focusing on high-value products and high-value customers” and building brands. As the product line continues to improve, we are optimistic that the product scale will expand and customer expansion will support the gradual recovery of the company's domestic growth rate. Furthermore, as of the third quarter of 2024, the total value of the company's monetary capital and transactional financial assets was 1.171 billion yuan. Based on the development model of upstream life science companies and the company's development strategy, we are optimistic about the possibility that subsequent companies will accelerate expansion through extended mergers and acquisitions.

Profitability analysis: Gross margin increased sharply in a single quarter. We are optimistic about the gradual release of profitability flexibility. Assuming that the company's product structure is adjusted and the share of overseas revenue increases, we estimate that the company has passed the lowest point of profitability, and the subsequent increase is more flexible. 2024Q3's gross margin was 44.35%, up 5.03pct year on year; net margin was 11.47%, up 1.18pct year on year. We estimate that the sharp increase in the company's gross margin in the third quarter is related to two factors: an increase in the share of overseas revenue and an increase in the share of high-gross products. Based on the previous analysis of growth, we believe that the company's transformation from its previous scale strategy to high-quality growth has been verified. As the share of overseas revenue increases and the product structure continues to be optimized, we expect the company's subsequent trend of increasing gross margin to continue. In terms of cost ratios, the company's Q3 sales expense ratio increased by 0.43 pct year on year, management fee rate increased 0.28 pct year over year, R&D cost ratio increased 0.45 pct year over year, and financial cost ratio increased by 3.03 pct year on year. Some of the cost rate increases may be related to the company's intelligent construction to improve the efficiency of warehousing operations. We are optimistic that subsequent scale effects will be reflected at an accelerated pace.

Management quality analysis: optimistic about the continuous improvement of operational efficiency

In terms of operational efficiency, the company's inventory turnover ratio for the first three quarters of 2024 was 0.68, down 0.11 from the previous year. We are optimistic that the turnover ratio will recover after the intelligent transformation of warehousing is completed. In terms of cash flow, the company's net operating cash flow for the first three quarters of 2024 was 0.101 billion yuan, which was a sharp correction over the previous year. The company continued to improve in supply chain management and receivables collection, and we are optimistic that the quality of operations will continue to improve.

Profit forecasting and valuation

We expect that in 2024-2026, the company will achieve revenue of 1.132/1.308/1.541 billion yuan, with year-on-year growth rates of 3.67%/15.51%/17.86%, respectively; net profit to mother of 0.12/0.159/0.214 billion yuan, with year-on-year growth rates of 9.34%/32.79%/34.25%, respectively; EPS of 1.32/1.75/2.35 yuan, respectively. The closing price on October 24, 2024 corresponds to 2024 PE is 26x, corresponding to 2025 PE is 20x, maintaining the “gain” rating.

Risk warning

Risk of exchange rate fluctuations; risk of increased market competition; risk of R&D progress falling short of expectations; risk of fluctuations in global new drug development boom.