Key investment points

For companies in the scientific service sector, product power, service power, and productivity are all important in development. As a scarce full-process scientific service platform in the industry, Titan Technology has gradually passed the stage of strategic scale upgrading. In the future, it will further improve product capacity+productivity, and is expected to enter a new stage of improving profitability from 2025.

What do you think of the current development stage of the company's service capabilities?

Since its listing, the company has been improving its service capabilities. Since its launch, it has gradually moved out of East China, built 23 key urban warehouses in 2021, completed the construction of 5 regional central warehouses and 28 urban service warehouses in 2022. With the improvement of the company's service capabilities, East China's revenue dropped from 81% in 2016 to 71% in 2023, North China's revenue increased from 4.6% in 2016 to 9.5% in 2023, and regions such as South China/Central China/Northwest China all achieved breakthrough growth. At the same time, the company has sold more than 6.5 million product SKUs through its own brand and third party supplementation. It is one of the companies with the richest products and the most complete order processing and delivery capabilities in the industry.

From the perspective of financial statements, we found that the absolute value of the company's accounts receivable, which had the greatest impact on cash flow from operating activities in Q1-Q3 of 2024, continued to decline. This was the complete opposite of the repayment pace shown in the past, and the margin of inventory increase weakened markedly. It is expected that by the end of 2024, it will officially enter the cash flow recovery phase. We believe that this series of changes in financial indicators shows the company's judgment on its current pace of development. When revenue scale, product coverage, and customer service have reached a certain level, it may later enter a new stage of service optimization, product strength improvement, and productivity improvement.

What do you think of the company's current stage of product development?

Due to the company's concentrated investment in service capabilities and rapid expansion in the past, the market often overlooked product capabilities hidden under a revenue scale of nearly 3 billion. We found that the company's share of proprietary brand revenue has increased from 50% at the beginning of listing (2021) to 58% (2023), and its share of gross profit increased from 61% (2021) to 79% (2023). In particular, Adamas, an independent high-end reagent brand that began, has always achieved high growth above the market average as a segment with strong profitability and high brand stickiness. Revenue CAGR of 45% in 2016-2023, and still achieved a year-on-year increase of 30.26% against the backdrop of weak demand in the 2024H1 industry and worsening market competition. We believe this is strongly linked to the company's strong product strength in the sector and brand recognition in the minds of customers. At the same time, the company's gradually improving service capabilities have also played a strong enabling role for independent brands to further increase their market share and achieve high growth.

In addition, the company acquired Rundu Biotech, Maigao Instruments, and Qinxiang Instruments in 2024H1. In addition to Titan Pure Source, which was previously invested and established, the company further built the industrial ecosystem of Titan's own brand. Through these segments of investment, mergers and acquisitions, the company continuously improves product capabilities and achieves effective collaboration with its own service and productivity. Furthermore, the company established the Titan Heyuan Investment Fund in 2021, which is expected to continue to introduce high-quality products to enhance its own brand power and profitability.

What do you think of the company's current stage of productivity development?

We found that the company's balance sheet has changed markedly since its listing, and fixed assets and projects under construction have improved markedly, showing that the company will gradually move from an OEM production model for self-developed products limited by stages in the past to an autonomous and controlled production stage.

Since its listing, the company has continuously replenished its production capacity, acquired Anhui Tiandi at the end of 2021 to achieve independent production of high-purity solvents. It will gradually invest in Yichang's general reagent and high-end reagent R&D and manufacturing base to achieve independent production under its own brand, and invest in the Fengxian Free Trade Zone Life Science Headquarters Park by the end of the year to achieve the “research-production-investment” function transformation of high-end domestic scientific instruments and key reagent consumables. We believe that for some consumables such as reagents and consumables, a large variety of products, a large customer base, a wide range of applications, and a high repurchase rate are the basic market for leading enterprises in the scientific service industry. Product supply capacity, quality, and cost control capabilities are particularly important. After the company's production capacity is put into operation, it is expected to greatly increase the profitability and growth of low-gross products such as general reagents, and drive the overall development of the company.

Market capitalization space estimation

According to PS: In the early stages of development of platform-based companies, scale reflects value, and the market usually uses the PS valuation method. Referring to the valuation level of Thermo Fisher PS, a leading scientific service company, TMO corresponds to about 5.06 times PS on November 7, 2024. Since Titan Technology is still in the early stages of development, we gave the company a PS valuation of 2 times in 2025, corresponding to a market capitalization of 6.5 billion, and still has 62.5% market capitalization space.

Segment valuation method: Looking at segments, Adamas, a sector with a strong brand and continuous high growth, has always maintained a year-on-year growth rate of more than 20%. Referring to the company's mid-year report, the self-branded high-end reagent 2024H1 increased 30.26% year-on-year. Assuming that 30% growth will be maintained in 2025, with reference to the gross profit margin of the company, the company's overall sales expense ratio, management cost ratio, and R&D expenses, we estimate that Adamas may achieve a profit of about 0.157 billion in 2025. According to the PE level of comparable product reagent companies, Adamas will be given 30 times PE, corresponding to 4.7 billion in market value. For the remaining 2.5 billion revenue, we still refer to the PS valuation method of science service platform companies and give a PS valuation of 0.8-1 times, corresponding to a total market value of 6.7-7.2 billion, and there is still room for 67%-80%.

Profit forecasting and valuation

We expect the company to achieve revenue of 2.902, 3.273, and 3.731 billion yuan in 2024-2026, an increase of 4.77%, 12.79%, and 14.01% year-on-year; net profit to mother of 16.59 million, 69.08 million, and 0.171 billion yuan, up -77.14%, 316.33%, and 147.23% year-on-year. Referring to the market capitalization space estimation section, we upgraded the company to a “buy” rating.

Risk warning

Product restructuring falls short of expectations; production capacity falls short of expectations; regional expansion falls short of expectations; industry competition pattern deteriorates; domestic substitution process falls short of expectations; environmental protection and production safety risks