event: recently, the company released a report for the first three quarters of 2023: in the first three quarters of 2023, the company realized operating income of 2.204 billion yuan, down 33.01 from the same period of last year (excluding the impact of the epidemic in 2022, the company's income in the first three quarters of 2023 increased about 31% from the same period of last year). net profit attributable to the parent and net profit attributable to the non-parent lost 0.198 billion yuan and 0.243 billion yuan respectively.

among them, in the third quarter of 2023, the company realized operating income of 0.76 billion yuan, down 18.15 percent year-on-year (excluding the impact of the epidemic in 2022, the company's revenue in the third quarter of 2023 increased by about 24% year-on-year), and the net profit attributable to the mother and the net profit deducted from the mother lost 0.1 billion yuan and 0.108 billion yuan respectively.

the gene sequencing business is rapidly opening up overseas markets, and the proportion of consumables revenue is expected to continue to increase. the gene sequencer business segment will achieve a cumulative revenue of 1.729 billion billion yuan in the first three quarters of 2023, up 31.47 percent year-on-year.

by revenue region: in the first three quarters of 2023, the company realized revenue of 1.083 billion yuan in mainland China and Hong Kong, Macao and Taiwan, up 21.19 percent year-on-year; Asia Pacific region realized revenue of 0.288 billion yuan, up 34.12 percent year-on-year; Europe and Africa realized revenue of 0.256 billion yuan, up 68.76 percent year-on-year; and the Americas realized revenue of 0.101 billion billion yuan, up 85.83 percent year-on-year. With the gradual settlement of litigation, the company's overseas markets are rapidly opening up, especially in Europe and the Americas, the main traditional markets for sequencing business. The company's gene sequencer business began selling products in the United States in early 2023, helping to achieve rapid revenue growth in the United States.

by product type: in the first three quarters of 2023, the revenue from instruments and equipment in the gene sequencer business was 0.671 billion yuan, up 15.63 year on year, accounting for about 39% of the revenue from the gene sequencer business. Revenue from reagent consumables was 1.026 billion yuan, up 42.92 year on year, accounting for about 59% of the revenue from gene sequencer business.; Other income reached 0.032 billion yuan, up 89.64 percent year-on-year.

in the first three quarters of 2023, the company added more than 640 new installed units of various types of gene sequencers worldwide, and the total installed capacity continued to grow rapidly. By the end of the third quarter of 2023, the company had sold more than 3,100 installed units, laying a foundation for the subsequent increase in customer reagent consumption.

gene sequencing reagent consumables revenue ratio increased led to the company's comprehensive gross margin increased in the first three quarters of 2023, the company's comprehensive gross margin of 59.75, up 4.45pct year-on-year.

Among them, the gross profit margin of the gene sequencer business was about 65%, an increase of about 4 percentage points year-on-year.

We believe that this is mainly due to the increase in the proportion of revenue from reagent consumables in the gene sequencer business.

expense rate, the company's sales expense rate, research and development expense rate, management expense rate and financial expense rate in the first three quarters of 2023 were 25.42, 29.14, 15.97 and -3.64 respectively, with year-on-year changes of +10.25pct, +13.17pct, +3.90pct and -1.40pct respectively. During the period, the overall cost rate increased by 25.92pct, mainly due to the company to increase investment in research and development and accelerate overseas market expansion. Combined with the $0.325 billion net compensation paid by the company in the same period last year, the company's overall net interest rate decreased by 70.33pct to -8.94 percent year-on-year.

among them, the comprehensive gross profit margin, sales expense rate, research and development expense rate, management expense rate, financial expense rate and net interest rate in the third quarter of 2023 were 63.04, 27.07, 27.62, 16.47, 3.91 and -13.29 respectively, with year-on-year changes of +11.83pct, +6.91pct, +6.76pct, +1.67pct, +11.73pct and -193.82pct respectively.

continued investment in research and development of new technologies and products around core technologies

in the third quarter of 2023, the company comprehensively optimized the biochemical, fluid and optical systems of DNBSEQ-T7 in the sequencer business sector, and launched products such as mycobacterium tuberculosis full gene sequencing and monkeypox genome sequencing library kit, sewage new crown monitoring library kit and other products for global public health prevention and control needs. In the laboratory automation business sector, A MGIFLP-L50 modular sequencing workstation and a MGISP-NEX fully automatic nucleic acid extraction and purification instrument were introduced, of which the MGIFLP-L50 modular sequencing workstation can realize one-stop automatic library construction to sequencing data. In addition, for the MGISP-Smart8 in the function, operating software and application of a full range of upgrades, in the new business sector, the company released the cell droplet generator DNBelab C- TaiM 4 (Taishan), as well as the cell epigenetic product scATAC library kit.

profit forecast and investment rating: based on the analysis of the company's core business sectors, we expect the company's operating income from 2023 to 2025 to be 31.05/39.94/5.096 billion yuan respectively, with a year-on-year growth rate of -26.61/28.63/27.59 respectively; The net profit attributable to the parent was -0.46/0.97/0.21 billion yuan respectively, with a year-on-year growth rate of -102.28/309.00/117.41 respectively; EPS is -0.11/0.23/0.51 yuan/share, corresponding to 165.92 times PE in 2025 at the closing price on November 8, 2023. Maintain a "buy" rating.

risk tips: product upgrade and technology update risk, intellectual property litigation risk, international trade friction on the company's product sales risk, competition intensifies the risk.