Incident: The company released its annual report for the year 20223 and the quarterly report for 2024. In 2023, it achieved operating income of 6.853 billion yuan (yoy +6%), net profit attributable to mother of 317 million yuan (yoy -44%), net profit of 309 million yuan (yoy -42%), and net cash flow from operating activities of 205 million yuan (yoy +725%). In the first quarter of 2024, we achieved operating income of 1,392 million yuan (yoy -10%), net profit attributable to mother of 21 million yuan (yoy -116%), and net profit of non-return to mother of 25 million yuan (yoy -117%).

Comment:

Bioengineering led growth, and the European region performed well. The company continues to improve delivery efficiency, accelerate the launch and iteration of new products, and achieved revenue of 6.853 billion yuan (yoy +6%) in 2023. By business, it has made breakthrough progress in bioengineering, solid preparations, pharmaceutical water and other fields, including bioengineering solutions and stand-alone 944 million yuan (yoy +42.45%), solid preparation solutions and stand-alone 637 million yuan (yoy +34.60%), pharmaceutical water equipment and engineering system integration of 1,118 million yuan (yoy +30.86%), sterile formulation solutions Also, stand-alone machines, testing and packaging solutions, and stand-alone machines were affected by the high demand base of the epidemic, which declined by 14.18% and 6.98%, respectively, to achieve revenue of 16.24 billion yuan and 1,652 billion yuan. Looking at the subregion, the company achieved revenue of 4.973 billion yuan (yoy +3.17%) in mainland China, 932 million yuan (yoy +48.65%) in Europe, and 422 million yuan (yoy +13.47%) in the American region. There was a decline in Asia and other regions, mainly due to the high base of the epidemic.

Market competition affects gross margin levels, putting pressure on performance in the short term. In 2023, the company achieved net profit of 317 million yuan (yoy -44%), mainly due to intense market competition after the vaccine equipment dividend. In order to ensure market size and appropriate adjustments to sales prices for some products, the gross margin of some products fell by 12.99 pp, solid preparation solutions and stand-alone gross margin decreased by 11.45 pp, and the integrated gross margin of pharmaceutical water equipment and engineering systems decreased by 6.09 pp. As a result, the company's gross sales margin reached 32.12% (yoy-4pp) .

In the first quarter of 2024, the company's net profit to mother was -121 million yuan (yoy -116%). The reason for the loss was that in addition to the gross margin continuing to decline to 28.05%, the company also increased investment in R&D and introduced a team of high-level talents in the industry. R&D remuneration costs increased, and short-term performance was under pressure. We believe that as the company strengthens its expansion into high-end international markets such as Europe and the US, accelerates the pace of new product launch, and continues to reduce costs and increase efficiency, revenue and net profit are expected to resume growth.

Profit forecast: We expect the company's revenue for 2024-2026 to be 75.08, 84.31, and 9.567 billion yuan, respectively, with year-on-year growth rates of 9.6%, 12.3%, and 13.5%, respectively, and realized net profit to mother of 3.33, 4.26, and 562 million yuan, up 4.9%, 28.2%, and 31.7% year-on-year respectively, corresponding to the current stock price PE of 14, 11, and 8 times, respectively.

Risk factors: industry cyclical risk; technology research and development progress falls short of expected risk; domestic substitution progress falls short of expected risk; overseas expansion progress falls short of expected risk.