Incident: On October 30, the company released its report for the third quarter of 2024: the first three quarters achieved operating income of 1.394 billion yuan, a year-on-year decrease of 9.78%; net profit to mother was 0.219 billion yuan, a year-on-year decrease of 23.29%, mainly due to a sharp decrease in revenue and non-recurring revenue from the COVID-19 business; after deducting non-net profit of 0.208 billion yuan, an increase of 19.01% year on year. Net operating cash flow was 0.318 billion yuan, up 164.90% year over year, mainly due to the increase in cash received by the company from sales of products in the first three quarters of this year and a decrease in cash payments for purchased products.

Among them, revenue for the third quarter of 2024 was 0.434 billion yuan, down 7.69% year on year. We expect mainly due to the company improving channel inventory and reducing credit orders based on operating cash flow management; net profit to mother 0.046 billion yuan, down 68.21% year on year; deducted non-net profit 0.046 billion yuan, up 0.08% year on year; net operating cash flow of 0.177 billion yuan, up 218.67% year on year.

The installed equipment continues to maintain a rapid growth trend. Among them, the assembly line performance was outstanding. From January to September 2024, the company added 1,727 new installations: (1) 995 new domestic installations were added, of which stand-alone 600-speed instruments accounted for 46.43%; (2) 732 new installations were added overseas, including 61 300-speed instruments. 61 new machines were added to the assembly line, an increase of 74.29% over the previous year.

As of September 30, 2024, more than 9,980 self-produced chemiluminescence instruments have been installed (more than 6,860 domestic units, more than 3,120 international units), and more than 150 assembly lines have been installed.

Revenue from the overseas chemiluminescence business grew rapidly, and superior projects such as self-reliance and myocardial success continued to increase. From January to September 2024, the company's non-COVID-19 self-produced business achieved operating income of 1.142 billion yuan, an increase of 24.40% over the previous year; of these, the self-produced chemiluminescence business revenue was 1.037 billion yuan, an increase of 29.15% over the previous year. Through years of intensive cultivation in overseas markets, the business gradually stabilized. From January to September 2024, the chemiluminescence business revenue was 0.134 billion yuan, an increase of 45.71% over the previous year.

From January to September 2024, the company's dominant projects continued to grow rapidly. Among them, the operating revenue of chemiluminescence autoimmune diagnostic reagents increased by 31.41% year on year, and the revenue of myocardial marker diagnostic reagents increased by 49.84% year on year; the biochemical diagnosis business also achieved rapid growth, achieving a year-on-year increase of 37.11%.

The gross margin increased significantly due to changes in the product structure. The absolute amount of expenses was basically the same as the same period last year. The company's comprehensive gross margin increased 10.32 pct to 63.69% year over year, mainly due to a sharp increase in the share of revenue from the self-production business. Among them, the comprehensive gross profit margin of the non-COVID-19 self-produced business was 70.45%, an increase of 1.37 pct over the previous year. In terms of expenses for the period: (1) sales expenses 0.3 billion yuan, up 6.47 pcts year on year, sales expenses increased 3.28 pct to 21.50% year on year; (2) management expenses were 0.126 billion yuan, up 0.37% year over year, and management expenses increased 0.91 pct to 9.03% year on year; (3) R&D expenses were 0.229 billion yuan, up 7.13% year on year, and R&D expenses increased 2.60 pct to 16.46% year on year; (4) financial expenses 0.006 In billion yuan, the financial expense ratio increased by 1.14 pct to 0.45% year over year.

Under the combined influence, the company's overall net interest rate decreased by 1.84 pct year on year to 13.83%.

Among them, the comprehensive gross profit margin, sales expense ratio, management expense ratio, financial expense ratio, and overall net interest rate for the third quarter of 2024 were 66.84%, 24.85%, 10.30%, 17.34%, 1.47%, and 8.62%, respectively, with changes of +4.24pct, +1.84pct, +1.71pct, +1.00pct, +1.25pct, and -18.78pct, respectively.

Profit forecast and investment rating: Based on changes in business strategy, we slightly lowered our performance expectations. We estimate that the company's 2024-2026 revenue was 2.117 billion/2.602 billion/ 3.124 billion yuan, with year-on-year growth rates of 3%/23%/20%, respectively; net profit to mother was 0.376 billion/ 0.509 billion/ 0.65 billion yuan, respectively, up 6%/35%/28%, according to 2024 The closing price on November 6 corresponds to 27x PE in 2024. We believe the company is expected to maintain steady growth and maintain a “buy” rating in the future.

Risk warning: Intense competition increases risk; risk that implementation of policies such as DRG and DIP affects test volume; risk that collection price cuts exceed expectations; risk that hospital procurement will continue to be delayed due to medical industry restructuring; risk that overseas market expansion falls short of expectations.