As a leading enterprise in the field of molecular diagnostics, the company has a solid reserve in terms of technology platform and product pipeline, especially in response to public health events. Since 2024, the company's previous high base and impairment and other disturbance factors have been cleared, the regular business has gradually returned to the right track, and the international strategic layout has achieved initial results, and the future growth potential is large, we continue to be optimistic about the company's long-term development space.

Stock price and performance review: The disturbance factors are cleared, and the stock price at the beginning of the repair cycle: Since 2020, the stock price has risen by more than 650% during the period driven by the substantial growth of the new crown testing business, and the PE-TTM has reached a maximum of 147 times. Since 2023, with the gradual liquidation of the new crown testing business, the company's revenue has fallen sharply, and at the same time, asset and credit impairment has dragged down the profit side, and the company's stock price has fallen rapidly. Until 2024, the company's business will gradually return to normal track due to the high base and impairment and other disruptive factors, and the company's stock price will enter a period of steady recovery, and as of October 21, 2024, the company's stock price has increased by more than 35% since 2024.

Revenue and net profit: From 2020 to 2022, driven by the new crown testing business, the company's revenue and profit ushered in significant growth. If this factor is not considered, from 2018 to 2023, the company's operating income CAGR will be 11.8%; It is worth noting that in 2024H1, the company's new crown testing and other related disruptive factors have been gradually cleared, and revenue and profit have gradually returned to the right track: excluding the impact of the new crown business in the same period, the company's regular business revenue was YOY 1.96%, and the net profit attributable to the parent company was YOY 142.82%, and we expect that the company is expected to continue to grow steadily throughout the year.

Operational capacity and profitability: From the perspective of profitability, the company's gross profit margin has bottomed out in 2022 and has gradually stabilized and increased with the clearance of the new crown testing business. In addition, in terms of expense ratio and operational efficiency during the period, 2024H1 has improved significantly compared to the same period last year. We believe that in 2024, the company's business development and operating quality have entered a new stage of development, and profits will turn into profits, and the stock price is expected to usher in a Davis double click with valuation repair.

Molecular Diagnostics Market: IVD is the second largest segment, with large scale and fast growth Market size: The global molecular diagnostics market size has grown from $7.1 billion in 2019 to $11.1 billion in 2023, with a CAGR of 11.8%, and is expected to reach $12.2 billion in 2024. In 2023, the size of China's molecular diagnostics market will reach RMB 22.4 billion, with a CAGR of 27.8%, and is expected to grow to RMB 27.7 billion in 2024, with a year-on-year growth rate (23.7%) higher than the global average (9.9%).

Competitive landscape: In China's molecular diagnostics industry, foreign companies such as Roche, Abbott and Siemens are still in the leading position, while domestic companies such as BGI, Kehua Biotech and Daan Gene are also rising rapidly. Although the domestic molecular diagnostic industry is still in the early stage of development, the market concentration is not high, but domestic small and medium-sized enterprises are also actively expanding their market share, because molecular diagnostic technology involves a wide range of clinical needs, each company has its own advantages in specific fields, which has led to the market has not yet formed an obvious monopoly pattern.

Development trend: Since 2020, public health events have driven the domestic substitution of the molecular diagnostic industry and promoted the industry to accelerate its going overseas.

Shuoshi Biotech: We believe that the company's competitive advantage and marginal changes are mainly reflected in the following three aspects:

(1) The company has five core technology platforms, rich product pipelines, the company has multiple fluorescence quantitative PCR technology platform, NGS technology platform, POCT technology platform, mass spectrometry technology platform, automatic control and detection platform five technology platforms, all of which are applied to the company's self-produced products and realize industrialization, the company currently has more than 600 products, It covers a series of products such as infectious disease detection, tumor screening, female reproductive tract microecology detection, respiratory pathogen detection, tropical arbovirus disease and kidney injury detection, which are widely used in infectious disease prevention and control, clinical testing, tumor screening, eugenics and chronic disease management, etc., and the company's products have a strong competitive advantage in the corresponding market segments.

(2) Keeping up with current affairs and leading the market response: Based on a relatively solid R&D system, the company responds quite quickly to public health events and has a relatively large number of mature cases. The timeliness not only reflects the company's excellent competitiveness in the whole process of product project establishment, research and development, implementation to registration, but also enables the company to seize market opportunities in public health emergency procurement, so as to have a strong potential for performance explosion.

(3) Acceleration of overseas expansion: In 2024, the company will further focus on key countries and key markets to enhance the company's business influence and global competitiveness. It is worth noting that in 2024H1, the company's overseas revenue increased by 34.41% over the same period (the proportion of revenue increased to 3.0%), and if the impact of the new crown business in the same period is excluded, the overseas regular business revenue increased by more than 150% over the same period. We believe that the company's continuous deepening of the international strategic layout has achieved initial results, and the rapid development of overseas business is expected to play an important supporting role in the development of the company's overall business.

Profit forecast and valuation

We expect the company's revenue from 2024 to 2026 to be 4.1, 4.8 and 560 million yuan respectively, with year-on-year growth rates of 1.1%, 17.6% and 17.0% respectively, and the net profit attributable to the parent company will be 0.6, 0.9 and 130 million yuan respectively, with year-on-year growth rates of 49.4% and 44.4% respectively, and the corresponding PE will be 80.3, 53.7 and 37.2 times respectively. Considering that as a leading enterprise in molecular diagnostics, the company's net profit attributable to the parent company is in an upward repair cycle, and the CAGR in 2024-2026 is faster than the average of comparable companies, and at the same time, the company's overseas expansion is in a period of rapid development, and the company's future growth potential is greater.

Risk Warning:

Risk of policy change; the risk of uncertainty in international trade; market competition intensifies, risks, etc.