Event: The company released the third quarter report of 2024, and the operating income in the first three quarters was 1.869 billion yuan, a year-on-year decrease of 15.19%; net profit attributable to the parent company -463 million yuan, a year-on-year increase in losses; The net profit after deducting non-attributable to the parent company was -497 million yuan, an increase in the year-on-year loss. Among them, the revenue in 2024Q3 was 660 million yuan, a year-on-year decrease of 13.22%; net profit attributable to the parent company -165 million yuan, a year-on-year increase in losses; Net profit after deducting non-attributable to the parent company was -173 million yuan, with a year-on-year increase in losses.

Comments:

24Q3 performance is under pressure, and multiple factors drag down performance: 2024Q3 operating income decreased by 13.22% year-on-year, and the net profit loss attributable to the parent increased year-on-year, mainly due to the macro environment, geopolitics, market competition and other factors, the gross profit margin decreased year-on-year and the expense ratio increased year-on-year during the period. In 2024Q3, the company's gross profit margin was 58.38%, down 4.66 pct year-on-year, the sales expense ratio was 33.99%, a year-on-year increase of 6.92 pct, the administrative expense ratio was 23.36%, a year-on-year increase of 6.89 pct, and the financial expense ratio was -3.79%, down 7.70 pct year-on-year.

R&D expenditure decreased slightly, and new products continued to be launched: 24Q3 The company's R&D investment was 201 million yuan, a year-on-year decrease of 4.21%, accounting for 30.49% of operating income. In 2024Q3, a number of new products were released, such as the launch of the first microscopic imaging product in July with STOmics of spatiotemporal omics, the spatio-temporal microscope Go Optical and the combination product of human microbial metagenome sequencing; In August, at the 2024 China Synthetic Biology and Green Biomanufacturing Innovation and Development Forum in Shanghai, the MGIDS-1000P multi-functional droplet sorting all-in-one machine was released; In September, the latest sequencing technology - CycloneSEQ sequencing technology and two new gene sequencers - nanopore sequencers CycloneSEQ-WT02 and CycloneSEQ-WY01 were released.

Remarkable results in expanding cooperation and helping the development of multiple fields: In 24Q3, the company has reached strategic cooperative relations with Kangsheng Xuyuan, PredicaDiagnostics, Lingen Biotech, Jizhi Biotech, Geyinga, Shihe Gene, Hypros, Qihe Biotech, BRIN, Xuzhenda Biotech, etc., to help the company's application and development in immunology research, synthetic biology and other fields.

Earnings Forecast, Valuation and Rating: Due to the impact of the macro environment, geopolitics, market competition and other factors, the company's operating pressure is greater, we lower the company's 24-25 year net profit attributable to the parent company forecast to -294/69 million yuan (the original forecast is 240 million yuan/335 million yuan respectively), and introduce a 26-year net profit attributable to the parent company forecast of 167 million yuan. Considering the broad opportunities brought about by the company's continued promotion of domestic substitution and persistence in globalization, we maintain our "buy" rating.

Risk warning: the risk of a sharp decline in revenue from epidemic-related businesses, the risk of unfavorable market development, the risk that the growth of midstream and downstream sequencing demand is less than expected, the risk of "stuck" in foreign supply chains, and the risk of stock price fluctuations of sub-IPOs.