1-3Q24 results are in line with market expectations

The company announced results for the 1st to 3rd quarter of 2024: revenue of 0.986 billion yuan, +13.42% year over year; net profit attributed/withheld from mother was +0.018 billion yuan/-0.03 billion yuan, respectively, compared with -0.076/-0.139 billion yuan for the same period last year. Looking at the 3rd quarter alone, revenue was 0.337 billion yuan, +12.87% YoY; net profit attributed/withheld from mother was 0.002 billion yuan/-0.015 billion yuan, respectively, compared to 0.005 billion yuan/-0.021 billion yuan for the same period last year. 1-3Q results are in line with market expectations.

Development trends

Revenue grew by double digits in 1-3Q, and expense ratios showed a downward trend. Revenue from January to September 2024 was 0.986 billion yuan, +13.42% year-on-year. Revenue for the 1st to 3rd quarter was 0.302/0.348/0.337 billion yuan respectively, showing a year-on-year growth trend for 2 consecutive quarters. We believe that the company is gradually absorbing the impact of emergency operations, and regular business revenue is growing steadily. 1-3Q gross margin decreased slightly by 0.5 ppt year on year; the total cost ratio of the three items was 72.4%, which narrowed 14 ppt year over year, including sales expenses ratio 34.2%, -3.7 ppt year on year; management expenses ratio 16.5%, year on year -3.4 ppt; R&D expenses ratio 21.8%, year-on-year -6.6 ppt. Net loss not attributable to mother for the 1st to 3rd quarter narrowed significantly from 0.139 billion yuan in the same period last year to 0.03 billion yuan. We judge that the company's performance has clearly bottomed out, and profit margins may pick up starting in 2025.

Innovation and going overseas drive the company's growth. According to the announcement and results conference, the revenue of life science and in vitro diagnosis business increased by about 18%/32% year-on-year in the first half of 2024, respectively. The biomedical business is also about to clear the impact of emergency operations, and the revenue contribution of products such as new drug development reagents will begin to accelerate. The company actively promotes the commercialization of various innovative products such as rapid respiratory pathogen testing, Alzheimer's disease blood tests, and microfluidic control technology, and strives to carry out a strategic transformation from upstream raw material suppliers to downstream large-scale product application market expansion. Furthermore, as of 3Q24, the company used a direct sales distribution model to cover the five major regions of North America, Europe, Southeast Asia, East Asia and Northwest Asia, and overseas revenue continued to grow well.

Profit forecasting and valuation

Considering the company's continued investment in new product promotion, we adjusted our 2024/25 net profit forecast from 0.194/0.286 billion yuan to 0.03/0.202 billion yuan. We first switched our valuation to 2025, and the current stock price corresponds to 45.3 times the 2025 price-earnings ratio. Based on optimism about the company's subsequent promotion of new products and the recovery in downstream demand, we maintained an industry rating and target price of 27 yuan unchanged, corresponding to a price-earnings ratio of 54 times in 2025, which has room for an increase of 18% compared to the current stock price.

risks

The competitive landscape deteriorated, downstream demand recovery fell short of expectations, and internationalization fell short of expectations.