Matters:
The company released its 2023 three-quarter report. In the first three quarters, the company's revenue was 6.310 billion yuan (-48%), net profit was 576 million yuan (-76%), net profit was 576 million yuan (-76%), and net profit after deducting non-net profit was 343 million yuan (-86%). In the third quarter alone, the company's revenue was 2,001 billion yuan (-49%), net profit was 291 million yuan (-64%), and net profit after deducting non-net profit was 70 million yuan (-91%).
Commentary:
The overall revenue growth rate is under phased pressure, and regular business revenue is growing steadily. 2023Q1-3, the company's overall revenue was 6.310 billion yuan, a year-on-year decrease of 48.32%, mainly due to the decline in demand for nucleic acid testing.
However, at the same time, as China's medical order returned to normal, patients' demand for normal medical treatment was gradually released, and the company's revenue from routine medical diagnosis services resumed normal growth. 2023Q1-3, the company's regular business revenue was 5.891 billion yuan, an increase of 16.65% over the previous year.
Key disease areas have achieved rapid growth, and the share of revenue from tertiary hospital customers has increased. Looking at key disease areas, 2023Q1-3, the company's neurological and psychiatric disease diagnosis business revenue increased 34.41% year on year, infectious disease diagnosis business revenue increased 51.30% year on year, genetic and rare disease diagnosis business revenue increased 40.60% year on year, and cardiovascular and endocrine disease diagnosis business revenue increased 30.36% year on year. Judging from the share of customer revenue, in 2023Q1-3, the company's tertiary hospital customer revenue accounted for 42.65%, an increase of 5.87 percentage points over the previous year.
Research and development continues to be invested, and industry-university-research cooperation has made phased progress. 2023Q1-3, the company invested 365 million yuan in R&D, accounting for 5.79% of the company's revenue. Judging from the research and development results, 2023Q1-3, the company has newly developed 300 testing projects, and the total number of testing items has exceeded 3,900. Judging from the innovative results, in 2023Q1-3, the company has authorized 334 new intellectual property rights and published 81 new papers (including 16 SCI). In terms of industry-university-research cooperation, as of the three-quarter report of 2023, the company has accumulated nearly 190 cooperating institutions (hospitals, universities, research institutes, etc.), and 2023Q1-3, the company has added 19 new cooperating institutions. Of these, 7 new institutions (National Infectious Disease Medical Center, Peking University People's Hospital, etc.) promote research and transformation, 3 new institutions (Phoenix Zhiyao, etc.) promote upstream and downstream industry collaboration, and 9 new institutions (Dalian Medical University, Soochow University, etc.) promote university industry-university-research cooperation.
Investment suggestions: Considering that with the gradual normalization of the company's business, the company's marketing expenses are expected to continue to increase, we adjusted the company's net profit forecasts for 23-25 to 7.9, 11.4, and 1.58 billion yuan (the original forecasts for 23, 24, and 25 were 7.8, 12.9, and 1.69 billion yuan), corresponding to PE 37, 26, and 19 times, respectively. Considering the broad prospects of the domestic ICL industry and the company's strong momentum for sustainable development, according to DCF model estimates, we gave the company an overall valuation of 40.3 billion yuan, corresponding target price of about 86 yuan, maintaining the “recommended” rating.
Risk warning: 1. The time for the company's unprofitable laboratory to reverse losses was delayed; 2. Regular business operations fell short of expectations; 3. The rate of increase in domestic ICL penetration did not meet expectations.