Key points of investment

Performance:

2024Q1-3: Revenue of 3.41 billion yuan, YOY 17.4%; net profit attributable to mother of 1.38 billion yuan, YOY 16.6%; net profit after deducting non-return to mother of 1.33 billion yuan, YOY 20.8%.

2024Q3: Revenue 1.2 billion yuan, YOY 15.4%; net profit due to mother 0.48 billion yuan, YOY 10.0%; net profit after deducting non-return to mother 0.46 billion yuan, YOY 11.6%.

Growth:

Business split: Subregions: 2024Q1-3's main business revenue in the domestic market YOY 13.6%, overseas market main business revenue YOY 25.2%; production line: 2024Q1-3 reagent revenue YOY 17.9%, instrument product revenue YOY 16.3%; installed equipment: 2024Q1-3 fully automatic chemiluminescence instrument MAGLUMI X8 achieved sales/installed 795 units, with cumulative sales/installed capacity of 3,448 units; the company's new product SATLARS T8 A total of 30 assembly line products have been installed/sold.

Considering that the 2024Q3 company's performance was slightly lower than our previous expectations, we adjusted the company's annual performance forecast slightly downward. Despite this, we believe that the company's chemiluminescence analyzers, which relied on cost-effective advantages in the early years, have gradually reached the harvest period and are expected to continue to drive the rapid growth of the company's reagents. Furthermore, the company's overseas instrument installation has accelerated markedly in the past two years, and localized operations in key overseas markets have continued to advance, which is expected to push overseas revenue into a stage of accelerated development. The company's profitability is also expected to continue to improve as the share of the reagent business continues to increase. We continue to be optimistic about the company's medium- to long-term development potential.

Profitability analysis:

Gross margin and net profit margin: 2024Q1-3's gross margin was 72.3%, down 0.1 pct year on year, and net sales margin was 40.5%, down 0.3 pct year on year. Expense rate for the period: 2024Q1-3's sales expense ratio decreased by 1.3 pct year on year, management expenses rate decreased by 0.5 pct year on year, finance cost ratio increased 0.2 pct year on year, and R&D cost ratio increased 0.3 pct year on year.

Operating cash flow: 2024Q1-3's net operating cash flow was 0.96 billion yuan, YOY 3.4%. Net operating cash flow accounted for 63.0% of net income from operating activities, a slight decrease over the previous year.

Overall, considering the impact of policies such as chemiluminescence collection and increased competition in the industry, we believe that the company's reagent gross margin may decline slightly from 2024-2026. As the share of high-end customers and high-end machines increases, the gross margin of instruments will still increase slightly, and the cost rate may remain relatively stable during the sales period.

Profit Forecast and Valuation:

We expect the company's EPS to be 2.48, 3.11, and 3.91 yuan respectively in 2024-2026. The current closing price is 28.2 times PE in 2024. Considering that the company continues to be in a leading position in the chemiluminescence field, breaking the foreign monopoly, starting domestic substitution, and entering the global field of in vitro diagnostics, it has great potential for future growth and maintains an “gain” rating.

Risk warning

There is a risk that gross margin will decline due to increased market competition, the risk that sales of new products will fall short of expectations, policy events, etc.