Incident: The company released its 2024 three-quarter report. With 2024Q1-3, the company achieved operating income of 0.387 billion yuan, +19.19% year-on-year; net profit to mother of 83.89 million yuan, +38.86% year-on-year; net profit after deducting non-attributable net profit of 65.56 million yuan, +59.71% year-on-year. Among them, 24Q3 achieved operating income of 0.126 billion yuan, +0.20% year on year, net profit of 16 million yuan, or -37.42% year on year; net profit without return to mother of 12.56 million yuan, or -31.24% year on year.

Comment:

Q3 Revenue performance was stable, and overseas shipments fell short of expectations. The company's Q3 revenue remained close to flat year over year and failed to continue the high year-on-year increase in the previous two quarters, mainly due to overseas shipments falling short of expectations.

Gross margin declined year over year, and profit was under pressure in the single quarter. Affected by changes in domestic/foreign revenue ratio, the Q3 company's gross margin was 6.37pct year-on-year, reaching 35.02%. On the cost side, the Q3 sales expense ratio, management expense ratio, R&D expense ratio, and financial expense ratio were -0.32pct, -1.65pct, +1.60pct, and +0.81 pct, respectively. Looking at the net profit margin, the Q3 company's net profit margin was 11.75%, -7.57pct year on year. The decline in gross margin put pressure on the company's profits in a single quarter.

The plan to purchase the control rights of Shanghai Oyi Biotech is expected to have a synergistic effect. The company announced on the 28th that it plans to purchase 65% of Shanghai Ouyi Biomedical Technology Co., Ltd. shares by issuing shares and paying cash. Stock trading will be suspended from now on. According to Ou Yi's official website, Ou Yi Biotech was founded in 2009 and currently has more than 600 employees. It is a testing institution that provides multi-omics technical services for life science research. Its products cover genomics, transcriptomics, proteomics, metabolomics, bioinformatics, and clinical genetic testing. The company completed Series A and Series A+ financing in 2021, including Series A financing of tens of millions and Series A+ financing of nearly 100 million yuan. Considering that multiomics testing is closely related to the company's original synthetic biology research and development, we expect that the two will have a strong synergy effect.

Profit forecast and investment rating: Profit fluctuates in the short term, with good expectations for the whole year. Despite fluctuations in the company's profit in a single quarter, the company's overseas customer order volume did not change throughout the year, so the company's expectations for the whole year are still good. We expect the company's 2024-2026 EPS to be 0.70/0.84/1.04 yuan, corresponding to 2024-2026 30X, 25X, and 20X PE respectively, maintaining the company's “buy” rating.

Risk factors: customer orders fall short of expectations, product price reductions exceed expectations, asset restructuring falls short of expectations