Novi Zan publishes its report for the third quarter of 2024. 2024Q1-Q3 achieved operating income of 0.986 billion yuan, up 13.42% year on year; net profit to mother was 18.16 million yuan, up 123.77% year on year; net profit after deduction was -29.82 million yuan, up 78.60% year on year. 2024Q3 achieved operating income of 0.337 billion yuan, a year-on-year increase of 12.87%; net profit to mother was 2 million yuan, a year-on-year decrease of 57.55%; net profit after deduction was -14.53 million yuan, an increase of 30.88% year-on-year.

Opinion: The launch of new products and overseas market development drive steady revenue growth, and cost reduction and efficiency drive an increase in gross margin. Strong downstream demand for GLP-1 is driving high growth in the biomedical sector. The life science business is growing well, and the international business is gradually becoming the second growth curve. The company's strategy focuses on large downstream products. Respiratory pathogens, AD blood tests, and microfluidic control products are progressing smoothly, opening up room for long-term growth.

Q3 Steady growth on the revenue side, driving up gross margin by reducing costs and increasing efficiency. With the launch of new products and the development of overseas markets, the Q3 revenue side achieved steady growth. The gross margin of 2024Q3 was 69.97% (+1.64pct year over year), showing results in cost reduction and efficiency. 2024Q3 sales expense ratio is 35.53% (YoY +1.19pct), management expense ratio 16.01% (YoY -3.08pct), R&D expense ratio 21.39% (YoY -3.58pct). The increase in the sales cost rate is mainly due to the increase in AD testing equipment admission and marketing/academic promotion expenses. The decrease in the R&D cost rate is mainly due to R&D investment in many key products nearing completion. Projects such as AD, microfluidic control, and respiratory tract have completed R&D and certification work.

The life sciences sector is growing well, and the GLP-1 business is driving rapid growth in the biomedical sector. 1) Life science sector: Benefiting from new product lines and steady growth in international business, 2024Q3 achieved revenue of about 0.26 billion yuan (+14% year over year). Among them, the cell protein business grew by more than 120%, and the international business achieved revenue of about 23 million yuan (steady year-on-year and month-on-month growth). 2) Biomedical sector: 2024Q3 achieved revenue of about 50 million yuan (+40% year over year, +30% month over month), mainly due to the increase brought about by the GLP-1 business. The company's GLP-1 biomedical raw materials business officially started commercialization in 2024Q1, and Q2 was officially ordered. Driven by strong demand, Q3 continues to grow. 3) In vitro diagnosis sector: Due to the low season for early respiratory pathogen testing, the AD testing product line is still in the process of marketing and installation admission, and related revenue has declined month-on-month.

The strategy focuses on large downstream products to cultivate long-term growth drivers. The company actively promoted strategic transformation, and the process of expanding into the downstream large single product market was smooth. 1) Respiratory pathogens: Combined influenza A and B tests, Mycoplasma pneumoniae, etc. have all obtained registration certificates, and the series of products have been admitted to more than 500 hospitals. 2) AD blood test: In April 2024, all six AD blood test indicators have been approved, and the supporting instruments and equipment are expected to be registered by the end of this year. Dozens of clinical hospitals have been installed. Nearly 100 hospitals are in the admissions process. It is expected that 200-300 key hospitals and terminals will be installed and admitted by the end of this year. 3) Microfluidic control: Development and EU registration of 6 joint testing products for upper respiratory infections have been completed. Follow-up product plans include lower respiratory infections, bloodstream infections, gastrointestinal infections, meningitis, and STD infections. The development area focuses on Europe, the Middle East and Southeast Asia, etc., and sales billing was officially completed in October 2024.

Profit forecasting and investment advice. Considering the background of the industry's overall financing tightening, we expect the company's revenue to be 1.44, 1.794, and 2.247 billion yuan respectively, up 12.0%, 24.6%, and 25.2% year on year, respectively; net profit to mother will be 0.031, 0.152, and 0.273 billion yuan, respectively, up 144.1%, 385.4%, and 79.6% year over year; corresponding PE is 308X, 63X, and 35X, respectively, maintaining a “buy” rating.

Risk warning: Industry competition intensifies; overseas expansion falls short of expectations; new product development and sales fall short of expectations.