Source: China Times

Reporter Xia Gaoqin reports from Nanjing

As of the end of the third quarter, Kangwei Century (688426. SH) has been negative net profit attributable to the parent company for 6 consecutive quarters.

A few days ago, Kangwei Century released a third-quarter performance report, with a total operating income of 98.2836 million yuan from January to September 2024, down 35.11% from the same period last year, and a net profit of -95.6514 million, down 169.09% from the same period last year, with both revenue and net profit declining. The loss of Kangwei Century last year was 84.41 million yuan, and the loss at the end of the third quarter has exceeded the loss for the whole year of 2023.

Founded in September 2010, Kangwei Century is one of the few biotechnology companies in China to achieve a complete business layout in the core link of molecular testing, and from 2019 to 2022, benefiting from the support of new crown-related products and services, the company's performance continued to grow and successfully landed on the Science and Technology Innovation Board. However, with the contraction of the new crown-related business, the scale of the company's existing business declined, and its performance turned from profit to loss.

Kangwei Century said that the decline in revenue was mainly due to the market environment, the company's traditional business growth was slow, and the sales of new products were less than expected.

The reporter of "China Times" noted that in order to open up new performance growth points, on the day of the disclosure of the third quarter report, Kangwei Century voluntarily disclosed the relevant matters of the company's foreign investment, and the company signed the "Equity Transfer Agreement" with Shanghai Tianhao Biotechnology Co., Ltd. (hereinafter referred to as "Tianhao Bio") to purchase 51% of the equity of its wholly-owned subsidiary, Shanghai Haoweitai Biotechnology Co., Ltd. (hereinafter referred to as "Haoweitai"), and develop gene sequencing business.

The new crown business shrank and continued to lose money

The main products and services are the R&D and sales of biological reagents, and the core products include molecular detection enzyme raw materials, nucleic acid preservation reagents, nucleic acid extraction and purification reagents and molecular diagnostic kits.

In October 2022, Kangwei Century landed on the Science and Technology Innovation Board, and before landing on the A-share market, Kangwei Century's performance increased significantly with the support of new crown-related products and services. According to the data, from 2019 to 2022, Kangwei Century's operating income will be about 73.94 million yuan, 233 million yuan, 339 million yuan, and 522 million yuan respectively; The corresponding attributable net profit was about 8.972 million yuan, 108 million yuan, 126 million yuan and 159 million yuan respectively.

However, with the normalization of epidemic prevention and control, Kangwei Century's net profit in the 2023 semi-annual report turned from profit to loss, and the loss continued to expand. In 2023, Kangwei Century will achieve operating income of 171.3 million yuan, a decrease of 67.15% compared with 2022; The net profit attributable to the parent company was -84.41 million yuan, a decrease of 153% from 2022. Entering 2024, the company's revenue and net profit have not stopped. Judging from the single-quarter data, since the second quarter of 2023, Kangwei Century has suffered losses in 6 consecutive single-quarter performances.

Regarding the continuous loss of net profit, Kangwei Century told the reporter of China Times: "In order to cope with the loss of net profit, the company strives to tap the procurement increment of the original customer group on the one hand, and actively increases publicity and actively expands new customer groups on the other hand. In terms of the promotion of new products (such as Helicobacter pylori nucleic acid detection kit), the company is actively exploring multiple channels such as hospitals, physical examination centers, enterprises, insurance, and Internet platforms, and has made some progress in the expansion of the above channels. ”

However, the launch of the new product obviously failed to stop Kangwei Century's losses. In the first three quarters of 2024, the company's total operating income and net profit attributable to the parent company decreased by 35.11% and 169.09% respectively. According to the single-quarter data, although the total operating income in the third quarter was 31.137 million yuan, an increase of 4.15% year-on-year, it was still in the red.

Regarding the increase in income in the third quarter, Kangwei Century explained in an interview with a reporter from China Times: "In terms of inherent costs, the number of employees of the company has continued to grow since its listing in October 2022, especially the addition of highly educated and experienced talents, so that employee salaries have been growing steadily; In terms of operating costs, the company continued to expand new customers for the original business, and increased efforts to expand new business, and the expenses for personnel recruitment and channel expansion in the early stage increased. In terms of R&D, in order to continuously strengthen its R&D advantages, the company's R&D investment will account for 51.51% of operating income in 2023; In the first three quarters of 2024, R&D investment accounted for 83.60% of operating income. ”

Explore performance growth points

Under the continuous loss, Kangwei Century is also actively exploring new performance growth points.

On the evening of October 29, Kangwei Century disclosed the announcement of signing an equity agreement for foreign investment. With its own funds, it invested RMB 12.75 million to obtain 51% of the equity of Shanghai Haoweitai Biotechnology Co., Ltd., a wholly-owned subsidiary of Tianhao Biotechnology. Looking through previous announcements, this is the first publicly disclosed equity acquisition of Kangwei Century since its listing.

The company said that this investment is a deep integration and expansion of technology and resources, which will help promote the growth of the company's performance. According to the announcement, Haoweitai was established on October 15 this year, the company's main business is to rely on Tianhao Bio's technology accumulation in gene sequencing, to undertake all the patents of Tianhao Bio in scientific and technological services, as well as a variety of SNP typing and gene copy number detection technology, microbial 16S amplicon absolute quantification and metagenomic absolute quantification technology, etc., in the future, it will be committed to providing high-quality gene sequencing services for scientific research institutions, hospitals, medical colleges and biopharmaceutical companies in the field of gene biology at home and abroad. Genetic data analysis and technical support services.

The reporter noted that Kangwei Century itself also has a genetic testing business, which Kangwei Century said that there are two differences between the company and Haoweitai in the gene sequencing business: "Haoweitai focuses on the cutting-edge technology in the field of gene sequencing, Kangwei Century is based on the independent research and development of the underlying core technology of molecular testing, and has more than ten years of research and development accumulation in the field of molecular diagnostic raw material enzymes, nucleic acid preservation and sample pretreatment. In addition, the service objects of Haoweitai are more focused on professional institutions and enterprises in the field of gene sequencing, and the company's customer groups are more diversified, including but not limited to scientific research institutions, medical institutions, biopharmaceutical companies and individual consumers. This investment can be seen as an extension of the company's downstream industrial chain. ”

Zhang Yichun, an expert from the think tank of the Financial Associated Press, told the China Times: "The industrial chain structure of the gene sequencing industry is clear, mainly divided into three parts: upstream, midstream and downstream. The upstream mainly includes the R&D and production of gene sequencing instruments, reagents and consumables, while the midstream focuses on gene sequencing services, involving sample processing, sequencing analysis, data interpretation and other links, and the downstream is widely used, covering medical diagnosis, genetic counseling, drug research and development, agricultural breeding, environmental protection and other fields. In Zhang Yichun's view, gene sequencing is gradually being popularized from high-end scientific research and clinical fields to the field of public health, and the market demand continues to grow.

According to Kangwei Century, regarding genetic testing technology, the company has launched products and testing services based on nanopore sequencing technology to users through internal research and development. With this investment, the company can further expand its business scope in the field of gene sequencing, improve service quality and efficiency, and provide more comprehensive and professional services for scientific research institutions, hospitals, medical colleges and biopharmaceutical companies in the field of gene biology at home and abroad. This will help the company achieve in-depth integration and expansion of technology and customer resources in the field of gene sequencing, and improve service efficiency and performance.