Incident: The company released its report for the first quarter of 2024. In the first quarter of 2024, it achieved operating income of 2,973 million yuan (-8.01%), net profit to mother of 0.23 million yuan (-85.54%), net profit of 24 million yuan (-83.01%), and operating cash flow of 267 million yuan (-16.71%).
Depreciation impacted apparent performance, and Q1 results fell short of previous expectations. The revenue side of the 2024Q1 company declined slightly, including: ① Diagnostic services: achieved revenue of 1,149 billion yuan (-5.97%), of which ICL revenue was 1,071 million yuan (10.41% increase over 2023Q1), which still achieved double-digit growth despite a high base and changes in industry operating conditions, showing that the company's operations were resilient; ② Product business: The channel products business achieved operating revenue of 1,857 billion yuan (-7.06%), and its own product business achieved operating revenue of 0.76 billion yuan (-38.71%). The profit side of the 2024Q1 company declined sharply, mainly due to seasonal factors and the industry environment affecting the speed of payment of accounts receivable. In turn, the long-term account accrual ratio increased and increased the absolute amount of impairment accrual, making the impact of credit impairment on the company's profit side still quite obvious (2024Q1's credit impairment loss was 93 million yuan).
Subject capabilities continue to be strengthened to open up incremental space for innovation and overseas travel. The company continues to closely integrate technology platform expansion with disease solutions, improve comprehensive hematological diagnosis service solutions, continuously supplement new projects such as flow, ddPCR, NGS, etc., and carry out exclusive projects such as NGS-MRD for myeloid tumors, which is guided by customer needs and clinical practice, consolidates the value of the “R&D, production, marketing and testing” integrated industry chain, effectively resists phased fluctuations in medical policies and market competition, and accelerates the market share of discipline construction and innovative business models in high-value hospital clusters to ensure long-term sustainable development. The company continues to strengthen cost reduction and efficiency, further optimize the cost structure, and actively increase R&D investment to lay out product solutions for key disease areas and business models around LDT, IVD, and digital intelligence. In addition, the company has further accelerated its international business layout and developed overseas incremental markets for its own products and services.
Investment advice: The company is a leading third-party medical testing service provider in China. With the integrated development of “product+service”, the regular business is expected to grow steadily over the long term as the national layout improves, operational efficiency continues to increase, and the proportion of special examinations continues to increase. We expect the company's net profit to be 774/9.74/1210 billion yuan respectively, up 151.85%/25.72%/24.34% year-on-year, and EPS is 1.24, 1.55, and 1.93 yuan respectively. The current stock price corresponds to 2024-2026 11/9/7 times PE, maintaining the “recommended” rating.
Risk warning: risk of routine business recovery falling short of expectations, risk of accounts receivable repayment falling short of expectations, risk of a sharp drop in inspection service prices.