Incident: The company plans to acquire control of Shanghai Yuanshi. On May 23, 2024, the company announced its intention to acquire Shanghai Yuanshi through an agreed transfer and hold 70% of Shanghai Yuanshi's shares.

The target of the acquisition is Shanghai Yuanshi's scientific analytical instrument circuit, and the market space for the industry is broad.

(1) Shanghai Yuanshi, the target of the company's acquisition, is a national high-tech enterprise in the field of scientific analytical instruments established in 2008. It has a rich product line, mainly including:

Spectroscopy, organic element analysis, pre-treatment, etc. Shanghai Yuanshi has strong R&D and innovation capabilities. It is a “specialized, special and new” enterprise that has obtained more than 70 national patents and software certificates. The company's product technology is at a leading position in its field of expertise and has strong market influence. Among them, spectral and organic element analysis equipment rank first among domestic instruments and are sold to more than 90 countries and regions around the world.

(2) In terms of market size, according to SDI statistics, the global analytical instrument market is expected to reach 75 billion US dollars in 2022, of which the Chinese market accounts for about 12-15%, and China's growth rate is higher than the global average. Organic element analysis instruments are important equipment in the chemical, electronics, food and other industries. Spectral analyzers are the core high-end equipment in the fields of scientific research, environmental monitoring, agricultural and food safety products, and medical care. In recent years, we can see a rapid rise in demand in the domestic market. According to data from the Huajing Industrial Research Institute, China's experimental analytical instrument market is about 34.5 billion yuan in 2021, and is expected to grow to 41.8 billion yuan by 2025; the overall size of the spectrometer market will exceed 8 billion yuan in 2022, and is expected to reach 10.165 billion yuan in 2025.

This merger and acquisition will help the company enrich its business layout, expand its commercial footprint, continue to develop its core competitiveness as a leader in the life science segment, and further advance towards the goal of becoming a supplier in the entire industry chain.

(1) This merger and acquisition will help the company continue to increase its upstream and downstream layout in the life science industry and strengthen its expansion in the field of smart laboratories. After the merger and acquisition is completed, the company and Shanghai Yuanshi will achieve collaborative development by leveraging their respective advantages in R&D, market and brand. First, in terms of technology, the company will build an analytical instrument interconnection platform, improve smart laboratory application scenarios, and expand new environmental and chemical laboratory scenarios, relying on the IoT technology platform and Shanghai Yuanshi's complete product matrix. Second, on the commercial side, the company will combine overseas localization and integrate customer resources of different types and levels of both parties to further enhance competitiveness in overseas markets. Finally, in terms of brand, the company will continue to expand its business boundaries with Yuanshi and achieve in-depth development in the scientific instrument industry chain by leveraging the word-of-mouth effect of its main business and rich ecological resources.

(2) Since the company's original stock channels relied on industry-leading biomedical storage products to have strong customer stickiness, the acquisition has a two-way promotion effect in terms of channels: 1) it can not only increase the types of products and services that can be promoted on the original channel, introduce analytical instrument categories, and gradually achieve high-end integration; 2) it can also use Shanghai Yuanshi's channels, such as industrial testing, chemicals, environmental protection, food and cosmetics, etc., to expand the “package” of products and services to these new channels, and do more and more to provide a long-term driving force for diversified performance growth.

Investment advice:

Buy-A investment rating, 6-month target price of 51.9 yuan. We expect the company's revenue growth rates from 2024 to 2026 to be 26.4%, 25.0%, and 23.5%, respectively, and net profit growth rates of 35.5%, 25.3%, and 25.1%, respectively, with outstanding growth; maintaining the investment rating given to Buy-A, the target price for 6 months is 51.9 yuan, which is equivalent to a dynamic price-earnings ratio of 30 times that of 2024.

Risk warning: uncertainty about the progress of mergers and acquisitions; uncertainty on the company's policy side; uncertainty about the company's subsequent orders.