New Industries released its report for the third quarter of 2024. 2024Q1-Q3 achieved operating income of 3.414 billion yuan, up 17.41% year on year; net profit to mother of 1.384 billion yuan, up 16.59% year on year; net profit without deduction of 1.331 billion yuan, up 20.80% year on year. 2024Q3 achieved operating income of 1.203 billion yuan, a year-on-year increase of 15.38%; net profit to mother of 0.48 billion yuan, up 10.02% year on year; net profit after deducting 0.463 billion yuan, up 11.62% year on year.

Opinion: The revenue side grew steadily in Q3. Domestic reagents were affected by policies and the growth rate slowed down, causing gross margin to fluctuate, which in turn caused the profit side to grow at a lower rate than the revenue side. Overseas markets are growing beautifully, and the overseas localization layout continues to deepen, and revenue and profits are expected to hit a double whammy. The installation of high-end instruments is progressing smoothly, driving breakthroughs in the high-end customer base and laying the foundation for reagent sales.

The company's operating resilience is highlighted. The revenue side grew steadily in Q3, and the slowdown in domestic reagent sales caused gross margin fluctuations, causing profit side growth to fall short of revenue side growth rate. Under pressure from DRG and mining, the Q3 revenue side achieved steady growth. The gross margin of 2024Q3 was 71.85% (2.51 pct year on year). As a result, the profit side growth rate was less than that of the revenue side. The policy affected the growth rate of domestic reagent sales to slow down, leading to fluctuations in gross margin. 2024Q3 sales expense ratio was 15.66% (YoY +0.55pct), management expense ratio 2.57% (YoY -0.58pct), R&D expense ratio 10.23% (YoY +0.71pct), financial expense ratio -0.90% (YoY -1.42pct), and overall cost ratio decreased by 0.74pct during the period.

Overseas markets are being developed at an accelerated pace, and revenue and profit are expected to have a double resonance. 2024Q1-Q3, domestic revenue increased 13.60% year on year, and overseas revenue increased 25.16% year on year. The company has refined its efforts in overseas markets, established 11 overseas subsidiaries, and sold products to 155 overseas countries and regions.

In recent years, the overseas instrument sales structure has continued to be optimized, and the share of reagent sales has steadily increased, helping to continue to increase profitability. 2024Q1-3, overseas reagent revenue increased 32% year on year, of which Q3 increased 37% year on year; the overseas market achieved 3113 light-emitting installations, and the sales share of medium and large light-emitting instruments increased to 66%. Overseas business is expected to resonate with both revenue growth and improved profitability.

The installed capacity of high-end instruments continued to break through, and instruments+reagents both achieved strong growth. 2024Q1-Q3, revenue on the reagent side increased 17.93% year on year, revenue on the instrument side increased 16.27% year on year, and both reagents and instruments achieved steady growth. The company continues to break through in the installed capacity of medium and large machines. The 2024Q1-Q3 has 1,248 domestic light-emitting machines, accounting for 75% of the installed capacity of large machines, and the X8 has achieved 795 units installed at home and abroad. As of 2024Q3, X8 has achieved a total of 3,448 installations at home and abroad, and 30 T8 assembly lines. Medium and large machines help high-end customers continue to break through. The number of tertiary hospitals served by the company increased from 907 in 2019 to 1,636 in 2024H1, and the coverage rate of the top three hospitals increased from 47.9% in 2020 to 60.2% in 2024H1, which is expected to drive continued growth in reagent sales.

Profit forecasting and investment advice. We expect the company's revenue in 2024-2026 to be 4.742, 5.877, and 7.275 billion yuan, respectively, up 20.7%, 23.9%, and 23.8% year-on-year; net profit to mother will be 1.986, 2.528, and 3.197 billion yuan, respectively, up 20.1%, 27.3%, and 26.4% year-on-year; corresponding PE will be 27X, 21X, and 17X, respectively, maintaining a “buy” rating.

Risk warning: Industry policy risks, overseas market development falls short of expectations, competition increases risk.