Matters:

In the first three quarters of 2024, the company achieved operating income of 2.126 billion yuan, a year-on-year increase of 3.49%; realized net profit to mother of 0.01 billion yuan, a year-on-year decrease of 86.49%, and a basic EPS of 0.06 yuan.

Among them, Q3 of '24 achieved revenue of 0.729 billion yuan, a year-on-year increase of 0.48%, and net profit to mother of 0.005 billion yuan, a year-on-year decrease of 78.48%.

Commentary:

Due to market demand and competition, gross margin declined, leading to a large decline in the company's net profit. Affected by weakening downstream demand, the 24Q1-3 company's comprehensive gross margin was 19.57%, down 3.87 pct from the same period last year, and 1.59 pct lower than the average gross margin level for the full year of 2023; the sales expenses/ management expenses/ financial expenses ratios of companies within 24Q1-3 were 6.95%/5.11%/1.20%, respectively, and the cost ratio changed by -0.67 pct/+0.52 pct/+0.47 pct, respectively, compared with the same period last year.

Although short-term results are under pressure, the prospects for scientific services are still bright. The scientific service industry is a key industry that serves the country's innovation-driven, transformation and upgrading strategy, and provides support and guarantee for industrial upgrading and enterprise innovation.

With the rapid development of the global scientific research field, the scientific service market in developed Western countries has basically matured, but as a developing country, China still started relatively late in the field of scientific services, and there is still a certain gap with developed Western countries, but at the same time, it has also created more room for development for domestic scientific service providers. At the same time, the field of scientific services covers a wide range and has broader prospects.

Pay attention to research and development, and continue to invest capital. In the first three quarters of 2024, the company's R&D expenses were 0.114 billion yuan. The company increased investment in product technology, promoted R&D projects around synthetic reagents, biological reagents, high-purity solvents, and small instruments, and enriched and improved the existing core technology. At the same time, maintain continuous investment in platform-based technology, and be guided by application and efficiency improvement to ensure that information platforms support the company's business.

Investment advice: Although the company's short-term performance is under pressure, the development prospects of the scientific service industry are still clear, waiting for an inflection point in performance after downstream demand is repaired. The company's net profit is expected to be 0.02/0.07/0.133 billion yuan in 2024-2026, with year-on-year changes of -73%/258%/90%, respectively, corresponding to PE 198/55/29 times.

Due to pressure on the company's current performance, using PS valuation, considering that there is still some uncertainty about the company's future changes, the company was given 1.7 times PS in 2025, corresponding to a target market value of 5 billion yuan for 25 years and a target price of 31 yuan for 25 years, maintaining a “strong” rating.

Risk warning: domestic substitution falls short of expectations; industry competition intensifies; regional expansion risks; warehousing and logistics risks, etc.