Incident: The company released its 2024 semi-annual report, achieving operating income of 0.649 billion yuan (+13.70%), net profit attributable to shareholders of listed companies of 16.16 million yuan, and deducted non-net profit attributable to shareholders of listed companies of -15.29 million yuan.

Regular business has maintained relatively rapid growth, and the overseas layout continues to gain strength. In the first half of 2024, the company's regular business revenue increased by about 20%, of which revenue for the second quarter was about 0.35 billion yuan, and regular business revenue grew by about 30% year-on-year, mainly benefiting from the rapid growth of new product line business and international business in the life sciences sector. By product line, revenue from biological reagents was 0.498 billion yuan (+25.24%). We think it is mainly because conventional scientific research biological reagents have maintained steady growth, and the revenue side of new product lines such as extraction, protein, cells, and instrument consumables has performed well. From a market perspective, the company's international business focuses on promoting superior products (including molecular biological reagent products such as scientific research reagents, genetic sequencing reagents, molecular diagnostic materials, etc.). In the first half of 2024, sales of the company's international business in North America, Europe, Southeast Asia and other regions increased exponentially compared to the same period last year. The international business achieved revenue of 41.08 million yuan (+143.82%), which also provided a considerable increase in performance for life science products. Revenue from diagnostic reagents was 98.07 million yuan (-31.33%), mainly due to the high revenue base for the same period last year (including revenue from COVID-19 products).

Large single products have been commercialized one after another, and revenue is expected to maintain a relatively rapid growth rate. Through a multi-disciplinary integrated common technology platform, the company has formed a core technical barrier with its own characteristics, focusing on medical products with high market demand and high entry barriers, and expanding the supply of upstream raw materials to downstream large product applications. We believe that with the commercialization process of various innovative products such as rapid respiratory pathogen testing, Alzheimer's disease blood testing solutions, microfluidic control technology, and GLP-1 product lines, the company's revenue is expected to continue to grow rapidly.

Expense rates continue to be optimized, and profit inflection points can be expected. In the first half of 2024, the company's sales expense ratio was 33.52%, down 6.24pct year on year; management expense ratio was 16.72%, down 3.61 pct year on year; R&D expense ratio was 21.95%, down 8.16 pct year on year. Among them, in the second quarter of 2024, the company's sales expense ratio was 32.97%, down 1.20 pct; the management expense ratio was 15.72%, down 2.15 pct from month to month; and the R&D expense ratio was 20.63%, down 2.84 pct from month to month. As the expense ratio continues to be optimized, the company's net profit withheld from non-return to mother was corrected in the 2nd quarter of 2024. We believe that the company's profitability is expected to continue to increase as the scale effect of the company's new product line is launched and revenue growth is reflected.

Profit forecasting and valuation. According to the business situation in the first half of 2024, we adjusted the profit forecast. We expect the company's revenue from 2024 to 2026 to be 1.586 billion yuan, 2.022 billion yuan, and 2,494 billion yuan, respectively, with year-on-year growth rates of 23.3%, 27.6% and 23.3%, respectively; net profit to mother is 0.099 billion yuan, 0.182 billion yuan, and 367 million yuan, respectively. Based on the closing price on September 6, the corresponding PE is 77.8 times. 42.2 times and 20.9 times, maintaining a “buy” rating.

Risk warning: The revenue growth rate of new product lines is lower than expected; biomedical R&D activity has declined, and the life science business product revenue growth rate is lower than expected.