Event:

On August 28, 2024, the Company released its 2024 Interim Report. In the first half of 2024, the company achieved operating income of 649 million yuan, a year-on-year increase of 13.70%; the net profit attributable to the parent company was 16.16 million yuan, turning losses into profits year-on-year; The net profit after deducting non-attributable to the parent company was -15.29 million yuan, and the loss margin narrowed. In a single quarter, in Q2 2024, the company achieved operating income of 347 million yuan, a year-on-year increase of 29.37% and a month-on-month increase of 15.30% compared with Q1 2024; the net profit attributable to the parent company was 10.94 million yuan, a year-on-year turnaround; The net profit of non-attributable to the parent company was 660,000 yuan, turning losses into profits year-on-year.

The overall performance improved significantly, and the business units operated steadily.

Significant improvement in the overall performance of the company in H1 in 2024: From the perspective of revenue, according to the company's official official account, if the impact of the new crown-related revenue in the same period last year is excluded, the company's regular business revenue in H1 2024 will increase by about 21% year-on-year; From the profit side, the company has turned losses into profits in H1 2024, and considering the amortization expenses of the equity incentive plan, we speculate that the actual operating profit of the company may be more substantial. From the perspective of organizational structure, the company's business divisions are operating steadily.

1) Life Science Division: More than 160 new products will be launched in H1 2024, and as of the 2024 interim report, the company has developed more than 1,500 biological reagents, and the regular business revenue of the Life Science Division in H1 2024 increased by approximately 18% year-on-year.

2) In Vitro Diagnostics Division: In H1 2024, it will obtain 6 new Class II medical device certificates and 5 medical device filing certificates, integrate high-quality channel resources, and have cooperated with about 350 channel providers and more than 2,800 end customers as of the interim report, and the regular business revenue of the In Vitro Diagnostics Division in H1 will increase by about 32% year-on-year in 2024.

3) Biopharmaceutical Division: Semaglutide supply chain solution was launched, and the key enzyme raw materials were scaled up and produced on a 5,000L fermentation scale, of which the batch production capacity of 29 peptide intermediates can reach more than 30 kg, and the annual production capacity can reach several tons, and it has become the main supplier of enzyme raw materials in the upstream of the industrial chain of this variety in China.

4) Microfluidic Division: Based on the self-developed automatic medical PCR analysis system Logicore, a new division was established, and a joint detection kit for upper respiratory tract infection was successfully developed in H1 2024, and obtained the EU CE certification.

5) International Business Division: Covering more than 60 countries or regions, setting up 10 subsidiaries, and continuously improving global delivery capabilities, H1 2024 achieved operating income of 41.08 million yuan, a year-on-year increase of 143.82%, of which sales in North America, Europe, Southeast Asia and other regions increased by multiple year-on-year.

Significant cost reduction and efficiency increase, is expected to turn losses into profits in an all-round way.

The company continued to promote cost reduction and efficiency improvement in daily operation and management, and the overall gross profit margin in H1 2024 was 70.74%, a slight decrease from H1 2024, and basically stable compared with H2 in 2023, of which the overall gross profit margin in Q1 2024 and Q2 2024 was 71.07% and 70.47% respectively. In H1 2024, the company's sales expenses will be 218 million yuan, management expenses will be 109 million yuan, and R&D expenses will be 142 million yuan, which will be further compressed compared with H1 2023 and H2 in 2023, of which the amount of expenses in Q1 2024 and Q2 2024 will be basically stable. Looking ahead to the second half of 2024, it is expected to turn a profit across the board as revenue volume climbs further.

The Alzheimer's series of diagnostic products has been approved and will soon be commercialized.

With the intensification of aging, Alzheimer's (AD) has become a hot topic of social concern, and considering the progression characteristics of the disease, the diagnosis of early patients is particularly important. Relying on the advantages of raw materials, the company's self-developed Alzheimer's diagnostic reagent products can achieve stable detection at the sub-pican level, and the sensitivity has reached the leading level in China. In April 2024, a total of 6 detection reagents independently developed by the company, including Aβ1-40, Aβ1-42, p-Tau 217, p-Tau 181, NfL and GFAP, were approved for Class II medical device registration certificates, becoming the reagent manufacturer with the largest number of certificates for the detection of AD core biomarkers through blood test samples based on the chemiluminescence platform in China, of which the Aβ42/40 index is the first chemiluminescence in China, and the two indicators of p-Tau217 and NfL are exclusive in China. In 2024, H1 has completed the development, access and listing of 6 indicators, and has started the installation and admission process in nearly 100 hospitals or scientific research institutions as of the interim report, and has carried out a lot of basic marketing work with the full listing, including channel promotion, academic conferences, personnel training, etc., to lay a solid foundation for the rapid promotion and volume of follow-up products. We believe that Alzheimer's has the characteristics of high incidence and difficult early diagnosis, and the company's AD series diagnostic products can effectively solve clinical pain points, with leading technical strength, and are expected to usher in commercialization quickly.

Investment advice:

We estimate that the company's operating income from 2024 to 2026 will be 1.563 billion yuan, 1.915 billion yuan and 2.323 billion yuan respectively, and the net profit attributable to the parent company will be 98 million yuan, 233 million yuan and 346 million yuan respectively, and the corresponding PE valuation will be 79.1 times, 33.2 times and 22.3 times respectively. Considering that the company is in a critical period of turnaround, we value it with reference to the 2025 earnings forecast, and the 12-month target price is 23.20 yuan, which is equivalent to a dynamic P/E ratio of 40 times in 2025, giving the company a BUY-A investment rating.

Risk warning: the risk of intensified competition in the industry; Cost reduction and efficiency increase are not as expected; The commercialization of new industries is less than expected; Risk of R&D failure.