Incident: The new industry released its report for the third quarter of 2024. The performance was in line with expectations. In the first three quarters of 2024, the company achieved operating income of 3.414 billion yuan/ +17.41%; net profit of 1.384 billion yuan/ +16.59%; net profit after deducting non-return to mother 1.331 billion yuan/ +20.80%; gross profit margin 72.34%, a decrease of 0.06pct year on year; net profit margin of 40.52%, a year-on-year decrease of 0.29pct.

In the third quarter of a single quarter, the company achieved revenue of 1.203 billion yuan/ +15.38%; net profit due to mother 0.48 billion yuan/ +10.02%; net profit after deducting non-return to mother 0.463 billion yuan/ +11.62%; gross profit margin of 71.85%, a year-on-year decrease of 2.51 pcts; and a net profit margin of 39.93%, a year-on-year decrease of 1.94 pcts. The decline in profit margins is mainly due to a higher share of instrument revenue in the third quarter of this year compared to the same period last year.

Changes in multiple profit items affect the apparent profit growth rate.

2024Q3, the company's sales, management, and R&D expenses rates were 15.66%, 2.57%, and 10.23%, respectively. They increased by 0.55pct, -0.58pct, and 0.71pct, respectively, over the same period last year, and remained stable.

Due to changes in multiple profit items, the company's net profit growth rate in the first three quarters was slightly lower than revenue: change in fair value 18.73 million/ -42.69%; credit impairment loss -19.63 million/ +80.46% (increase in bad debts); non-operating expenses 18.23 million yuan/ +1060.38% (increase in external donations); and other income 12.19 million yuan/ -56.54%.

Domestic and foreign business is progressing steadily, and self-production line promotion results are good.

In the first three quarters of 2024, the company's main business revenue in the domestic market increased 13.60% year on year; the main business revenue in the overseas market increased 25.16% year on year; overall reagent revenue increased 17.93% year on year; and overall instrument product revenue increased 16.27% year on year.

In the first three quarters of 2024, the company achieved sales and installation of 795 X8 units in domestic and foreign markets. The company's new SATLARS T8 assembly line products have completed the installation/sale of a total of 30 units, which has been widely recognized by the market.

The collection is being implemented one after another, and I am optimistic that domestic replacement will accelerate.

The collection of inter-provincial alliances led by Anhui is gradually being implemented in various provinces, which is expected to drive hospitals and dealers around the world to return to normal procurement and replenishment practices. All of the company's chemiluminescence testing projects entered Group A and were successfully selected, and it is expected that they will use the cost performance advantage to speed up the market share of imported brands.

The company faces a two-tier sponge effect in the face of collection price reduction: 1. The single-level distribution system provides higher channel profit margins, which is conducive to better absorbing the pressure on factory prices caused by falling factory prices; 2. The self-production+scale effect of raw materials brings high gross profit margins, which is conducive to better absorbing the pressure on the manufacturer's gross profit caused by falling factory prices.

Investment advice:

We expect the company's revenue to increase 19.63%, 25.91%, and 23.91% year-on-year respectively in 2024-2026; net profit to mother will increase 18.7%, 23.8%, and 22.7% year-on-year respectively, with outstanding growth; maintain the investment rating given to Buy-A, with a target price of 87.71 yuan for 12 months, which is equivalent to a dynamic price-earnings ratio of 28 times that of 2025.

Risk warning:

The risk that the company's overseas expansion falls short of expectations, the risk of changes in industry policies, and the risk of further intensification of industry competition.