Incident: The company released its 2023 annual report and 2024 quarterly report. In 2023, it achieved operating income of 2,765 million yuan (yoy -51%), net profit attributable to mother of 488 million yuan (yoy -59%), net profit after deducting 415 million yuan (yoy -62%), and net cash flow from operating activities of 329 million yuan (yoy -80%). In the first quarter of 2024, we achieved operating income of 881 million yuan (yoy +4%), net profit attributable to mother of 218 million yuan (yoy +7%), and net profit of 209 million yuan (yoy +7%) after deducting non-return to mother net profit.
Comment:
Regular business continues to grow, and profitability continues to increase. In 2023, the company strengthened its product capabilities and continued to cultivate in the three major domestic, international, and North American markets, achieving revenue of 2,765 billion yuan, a year-on-year decline of 51%. We believe this is mainly due to the rapid growth in demand in the COVID-19 antigen market due to the lifting of the domestic epidemic in 2022, while revenue from unconventional businesses such as COVID-19 declined in 2023. By product line, the infectious disease business, which is highly related to COVID-19 testing, and other businesses declined, achieving revenue of 952 million yuan (yoy -76%) and 97 million yuan (yoy -64%) respectively. Among them, chronic disease testing achieved revenue of 1,119 million yuan (yoy +19%), pregnancy and eugenics testing achieved revenue of 267 million yuan (yoy +10%), and drug abuse testing achieved revenue of 331 million yuan (yoy +13%). In terms of profit level, the company's gross sales margin in 2023 was 62.61% (yoy+11pp). We think it was mainly due to product restructuring. The proportion of chronic disease testing revenue with high gross margin increased by 24pp to 40.46%. 2024Q1's gross sales margin further increased to 66.30%, net sales margin reached 25.60%, and profitability continued to increase.
Strengthen R&D and diversified product layouts to help the company achieve “gradual, high-quality” growth. The company focuses on product innovation and product quality improvement, and has set up R&D bases in Guangzhou, Shenzhen, the United States, Japan, etc. By the end of 2023, there were 755 R&D personnel. The company invested 422 million yuan in R&D in 2023, accounting for 15.26% of revenue. With continuous high R&D investment, the company's product pipeline has been innovated. In the field of immunity, the company has launched an ultra-high speed FC-9000 series chemiluminescence instrument, FS-1000 and FS-2000, two new-generation dry fluorescence immunoassays to help accelerate the development of the core immune business. In the field of colloidal gold, the US subsidiary's respiratory trifecta has recently successfully completed performance and clinical verification in the US, and has successfully obtained FDAEUA authorization, which is expected to contribute to new business growth. In addition, the company is also expanding and strengthening innovative fields such as molecules, electrochemistry, and pathology Business tension to achieve gradual, high-quality growth.
Profit forecast and investment rating: We expect the company's 2024-2026 revenue to be 33.25, 41.05, and 5.0 billion yuan, respectively, with year-on-year growth rates of 20.2%, 23.5%, and 23.0%, respectively, and realized net profit to mother of 6.52, 8.49, and 1,077 billion yuan, up 33.8%, 30.1%, and 26.9% year-on-year respectively, corresponding to the current stock price PE of 19, 14, and 11 times, respectively, to maintain the company's “buy” investment rating.
Risk factors: risk of market development falling short of expectations; risk of new product development, registration and certification;