Performance summary: The company achieved operating income of 270 million yuan (+5.8%) in the first three quarters of 2020, achieved net profit of 63,535 million yuan (+10.2%), and net profit of the non-return mother was 63,535 million yuan (+6.8%). Among them, Q3 revenue was 120 million yuan (+27%), net profit of the mother was 33.78 million yuan (+18.1%), and net profit of the non-return mother was 32.361 million yuan.
The third quarter results recovered at an accelerated pace, and continued growth is expected in the fourth quarter. The revenue growth rate for Q1/Q2/Q3 was -45.6%/+24.9%/+27%, respectively. The net profit growth rate for returning mothers was -37.1%/+42.6%/+18.1%, respectively. Q1 was affected by the epidemic, and the negative impact of the Q3 epidemic is gradually recovering. As the spread of cervical cancer screening accelerates, demand for cervical cancer screening, which was suppressed by the epidemic in the first three quarters, is expected to accelerate a rebound in the fourth quarter. Year-on-year revenue growth rate in the fourth quarter Continued growth is expected. The gross margin for the first three quarters was 81.1% (-2.6pp), mainly due to the low gross margin of COVID-related products. The gross margin for the third quarter alone was 82.3%, which rebounded slightly. The sales expenses rate was 36.7% (-6pp). The sharp reduction in sales expenses was mainly due to the reduction in promotional activity expenses due to the pandemic in the first three quarters, the management expenses ratio was 14.7% (+1.8pp), and the financial expenses rate was -0.4% (-0.1pp). The net sales interest rate was 24.81% (+1.06pp), mainly due to proper cost management and significant reduction in marketing expenses.
Pay attention to R&D investment, and product iteration opens up room for growth. R&D investment accounted for 6.6% of revenue in the first three quarters, an increase of 1.18 pp over the previous year. Currently, the company has 5 research projects in the clinical stage. 1) The PCR series has an EGFR gene mutation detection kit for lung cancer (using the PCR-fluorescence probe method) that has completed clinical trials and is ready to be submitted for registration. After approval for listing, the company will become one of the products that detect the most types of mutation on the market. Two more PCR series products for cervical cancer using real-time fluorescence PCR and PCR-reverse point hybridization are entering clinical trials. 2) The FISH product line includes the ERBB2 genetic test kit for breast cancer detection. Clinical trials have been completed and registration is in progress. Furthermore, an ALK gene fracture test kit using fluorescence as a hybrid method is already in clinical trials.
Profit forecasts and investment recommendations. EPS for 2020-2022 is expected to be 0.95 yuan, 1.20 yuan, and 1.47 yuan respectively, and the corresponding PE is 52 times, 41 times, and 34 times, respectively. Considering that the company is one of the leaders in the field of pathological diagnosis, it will benefit from the epidemic to end the rebound in demand for screening for cervical cancer, breast cancer, etc. Give a “hold” rating.
Risk warning: the risk of price reduction for cervical cancer screening products, the risk of developing and registering new products, the risk of fierce market competition for the main product alone, etc.
