Key points of investment

Event: On October 30, 2024, the company released its report for the third quarter of 2024. In the third quarter of a year, the company achieved operating income of 0.222 billion yuan, a year-on-year increase of 28.72%, and net profit of 0.074 billion yuan, a year-on-year increase of 142.39% after deducting non-return net profit of 0.061 billion yuan, an increase of 130.57%; in the first three quarters, the company achieved operating income of 0.618 billion yuan, an increase of 10.37% over the previous year, and net profit due to mother of 0.198 billion yuan, a year-on-year increase of 94.48% after deducting net profit of 0.154 billion yuan, a year-on-year increase of 59.78%.

The business situation has improved markedly. 2024Q3's revenue increased by 28.72% over the same period last year, and operating costs increased by 12.39% over the same period last year, resulting in a 44.50% increase in the company's gross operating ratio over the same period last year. At the same time, the company's other income, investment income, etc. also increased during the reporting period compared to the same period last year, so the company's corresponding net profit indicators and earnings indicators all increased significantly compared to the same period last year.

The company's operating cash flow for the first three quarters was 0.192 billion yuan, a significant improvement over the same period last year.

Focus on POCT, strong influence in the international market: Aotai Biotech focuses on R&D, production and sales of in vitro diagnostic reagents. Its main product lines include infectious disease testing, drug and drug abuse testing, women's health testing, etc., and has established markets in more than 160 countries and regions around the world, especially in the European and American markets. In recent years, Aotai Biotech has effectively reduced production costs and promoted rapid iteration of new products through self-supply of upstream biological materials and continuous innovation in technology platforms. The company focuses on R&D investment and developed 25 new raw materials in 2023, 4 of which are domestic firsts, further enhancing competitiveness.

Equity incentives show confidence: company-level assessments focus on revenue and the number of domestic and foreign product registrations. The company aims to achieve revenue of 0.85 billion to 1.26 billion yuan in 2024-2026, with a compound annual growth rate of 18.6%. The total number of new domestic medical device product registration certificates approved by the company and its subsidiaries from 2024 to 2026 is not less than 25, and the total number of approved US FDA (510K certification) products from 2024 to 2026 is not less than 15 to ensure the company's continuous progress in product development and market expansion. We believe that equity incentives can further drive the company's progress and development, and at the same time demonstrate the company's confidence in future performance.

Profit forecast and investment rating: The company's overall operation continues to improve, so we raised our profit forecast. We expect the company's net profit to be 0.246/0.309/0.394 billion yuan for 2024-2026 (previously 0.239/0.303/0.385 billion yuan), and operating income of 0.846/1.084/1.421 billion yuan, respectively (previously forecast 0.832/1.065/1.396 billion yuan), EPS is 3.10/3.89/4.98. The P/E corresponding to the current stock price is 22.99/18.31/14.32 times, respectively, maintaining the “buy” rating.

Risk warning: the risk of delays in approval and promotion of new products falling short of expectations; risk of dealer management; strategic and management risks brought about by the expansion of business scale.