Event: the company recently released its semi-annual report of 2023. In the first half of 2023, the company achieved operating income of 816 million yuan, an increase of 14.65% over the same period last year, and a net profit of 242 million yuan, an increase of 48.34% over the same period last year, deducting 239 million yuan of non-net profit, an increase of 53.42% over the same period last year.

Quarter by quarter: in the second quarter of 2023, the company achieved operating income of 443 million yuan, an increase of 30.49% over the same period last year, and its net profit was 131 million yuan, an increase of 101.65% over the same period last year, deducting 130 million yuan of non-return net profit, an increase of 119.18% over the same period last year. The rapid growth of the company's performance in the second quarter is mainly due to the increased demand for testing brought about by the rapid rebound in routine diagnosis and treatment activities, as well as the low base in the same period in 2022.

Product structure adjustment superimposed expense dilution, driving profit margin to pick up quickly. In the first half of 2023, the company's sales expense rate was 21.35%, a year-on-year decrease of 1.44pp, a management expense rate of 8.26%, a year-on-year decrease of 0.05pp, a financial expense rate of 2.86%, a year-on-year decrease of 0.56pp, and a year-on-year increase of 0.05pp. The overall expense rate of the company has been optimized, mainly due to the dilution of expenses caused by the expansion of income scale and the gradual reduction of equity incentive fees. at the same time, the company continues to accelerate innovation R & D investment, leading to an increase in R & D expenditure rate. In the first half of 2023, the company's gross profit margin was 74.58%, an increase in 1.84pp compared with the same period last year, mainly due to an increase in the proportion of businesses such as blood coagulation with high gross margin. The company's net profit rate in the first half of 2023 was 29.32%, an increase in 5.91pp compared with the same period last year.

The rapid recovery of pathological business and the rapid release of hemagglutination and biochemistry are expected to accelerate the recovery in the second half of 2023. The revenue of the company's reagent business in the first half of 2023 was 771 million yuan, an increase of 15.29% over the same period last year, and the instrument income was about 38 million yuan, an increase of 4.73% over the same period last year. From a regional point of view, the company's domestic income in the first half of 2023 was 804 million yuan, an increase of 14.64% over the same period last year, and overseas income was 12 million yuan, an increase of 15.71% over the same period last year. Hospital diagnosis and treatment recovered as scheduled in the first half of 2023, and the company's biochemical, pathological, blood coagulation and other business lines performed well, of which the pathology business achieved an income of 340 million yuan, an increase of 11.04% over the same period last year. It still maintains good toughness under the disturbance of the end of the epidemic in the first quarter. Hemagglutination business is expected to maintain rapid growth with the help of Anhui collection and assembly lines and other new products, and biochemical business is expected to continue to recover steadily.

We expect the company's performance to accelerate in the second half of 2023 with further improvement in medical demand and continued contributions from new businesses such as superimposed chemiluminescence.

Continue to deepen strategic cooperation with major shareholders of Sinopharm to accelerate the transformation of platform IVD enterprises. Since 2020, the company has introduced Sinopharm as the largest shareholder of the company, committed to building a comprehensive IVD leader with central enterprise quality and national pharmaceutical brand, and carried out comprehensive and in-depth strategic cooperation with Sinopharm in the aspects of investment M & A, channel expansion, corporate governance and product research and development, to achieve good synergy. At the same time, major shareholder Sinopharm also continued to increase its shares in the company. Since the announcement of the plan to increase holdings at the end of 2022, the cumulative proportion of holdings has increased by about 0.63%. The recognition of the company has been increasing continuously, and the company has actively embraced strategic changes and taken the initiative. The future cooperation with Sinopharm is expected to achieve more, and the platform transformation is expected in the future.

Profit forecast and valuation: according to the semi-annual report data, we adjust the profit forecast. It is expected that the continuous recovery of downstream diagnostic demand is expected to lead the company's biochemical, pathological and other businesses to maintain a rapid growth trend. The company's revenue is expected to be 18.12,21.89 and 2.647 billion yuan from 2023 to 2025, an increase of 20%, 21% and 21% over the same period last year, and 19.19,23.06 and 2.78 billion yuan before the adjustment It is estimated that the net profit from 2023 to 2025 will be 5.24,6.57 and 837 million yuan, up 35%, 25% and 27% over the same period last year, and 5.25,6.72 and 857 million yuan before adjustment. The company's current stock price is about 22 times PE in 2023, taking into account the upward trend of the company's biochemical and hemagglutination business, pathological track continues to be high, chemiluminescence and other new products are expected to quickly release volume and maintain the "buy" rating.

Risk hint: overseas cooperation is not up to expectations, the market promotion of new products is not as expected, and the public data used in the research report may lag behind or not update in a timely manner.