Event: Shengxiang Biotech Releases Results Report for the Third Quarter of 2024

In terms of revenue, the company continued its rapid growth trend in the first half of the year. In the first three quarters of 2024, the company achieved operating income of 1.033 billion yuan, a year-on-year increase of 63.24%; net profit to mother of 0.195 billion yuan, a profit margin of 18.9%; after deducting non-net profit of 0.151 billion yuan, a profit margin of 14.7%. In the third quarter of a single quarter, the company achieved revenue of 0.316 billion yuan, a year-on-year increase of 54.0%; net profit to mother of 38.72 million yuan, a profit margin of 12.3%; after deducting non-net profit of 30.19 million yuan, a profit margin of 9.57%.

In the third quarter of a single year, the company's gross margin reached 78.04%, an increase of 5.37 pcts compared to the second quarter, which was also an off-season for respiratory testing.

The profit side is under pressure, and the repayment effect is good.

In the third quarter of a single year, the company's expense ratio increased sharply. Sales, management, and R&D expenses increased by 5.72, 0.86, and 3.83 pct, respectively. As a result, the company's net profit margin after deducting an increase in gross margin decreased by 4.97 pcts from the second quarter. However, from the perspective of absolute cost, the total absolute value of the three fees for Q1, Q2, and Q3 is 0.237, 0.223, and 0.249 billion yuan, respectively, which is relatively stable.

During the reporting period, the company strengthened payment collection and control of various procurement expenses, with good results. By the end of the third quarter, the total amount of the company's accounts receivable and other accounts receivable decreased by 77.72 million yuan compared to the end of the second quarter. In contrast, the company's net operating cash flow for the third quarter reached 52.83 million yuan.

A number of new products have been approved, and we are optimistic about the progress of the respiratory business in the fourth quarter.

In the third quarter, the company approved a number of new products, including a 1/2/3 nucleic acid detection kit for parainfluenza virus in the respiratory field, and four products in the field of pharmacogenomics. Furthermore, the company's 13+2 HPV test kit took 7 years to obtain cervical cancer screening qualifications. Since entering October, hospital ILI% has begun to fluctuate and rise. The country may enter a season of high incidence of respiratory infectious diseases. I am optimistic that the company will continue the good trend of the first three quarters in the fourth quarter.

Investment advice:

The company's net profit margin declined significantly in the third quarter of a single quarter, but the absolute value of expenses was still relatively stable, and gross margin also increased significantly from month to month. Based on this, if the company can continue the current revenue growth trend during the high incidence of respiratory infectious diseases in the fourth quarter, it is expected to drive a marked improvement on the profit side.

We expect the company's revenue to increase by 51.5%, 32.2%, and 26.7% year-on-year respectively in 2024-2026; net profit to mother increased by -5.5%, 40.6%, and 41.5%, respectively, with outstanding growth; maintaining the investment rating given to Buy-A, with a target price of 28.99 yuan for 12 months, which is equivalent to a dynamic price-earnings ratio of 35 times in 2025.

Risk warning:

The risk that the company's business expansion falls short of expectations, the risk of changes in industry policies, and the risk of further intensification of industry competition.