Investment highlights

The company disclosed the third quarter report of 2024, with revenue of 1.87 billion yuan in the first three quarters of 2024, a year-on-year decline of 15.2% under demand changes, and a net profit attributable to the parent company of -460 million yuan; Among them, Q3 revenue was 660 million yuan, down 13.2% year-on-year, and the net profit attributable to the parent company was -170 million yuan. The revenue of the core product (gene sequencing segment) in the first three quarters was 1.54 billion yuan, and the cumulative sales and installed capacity of gene sequencers exceeded 670 units, a year-on-year increase of 4%. We believe that the full-year growth rate may be under pressure under the influence of normalized demand and the macro environment, but with the increase in new installed capacity and overseas expansion, the revenue growth of the core segment in 2025 is expected.

MGI: Overseas expansion continues, consumables gradually increase

Q3 revenue is under pressure, but some regions have shown a recovery trend

　　　 In the first three quarters of 2024, the gene sequencer business achieved revenue of 1.54 billion yuan, a year-on-year decrease of about 11%, of which Q3 revenue was about 530 million yuan, a quarter-on-quarter decrease of 4%. In terms of regions, China's revenue in the first three quarters was 1.05 billion yuan; Revenue in the Asia-Pacific region was RMB150 million, representing a year-on-year increase of 16% excluding the impact of projects in the United Arab Emirates. Revenues from Europe and Africa were $220 million, while revenues from the Americas region were $120 million. Among them, Q3 China was 370 million yuan, down 6% month-on-month; revenue in the Asia-Pacific region was 40 million yuan, down 6% quarter-on-quarter; The revenue of Europe and Africa was 90 million yuan, an increase of 10% month-on-month, showing a growth recovery trend; Revenue in the Americas was $30 million, up 29% year-over-year and down 16% sequentially. Under the influence of the macro environment and competitive landscape, Q3 revenue is still under pressure, but thanks to the company's continuous promotion strategy, some regions have shown a recovery trend, and we believe that with the recovery of domestic demand and continuous overseas expansion, the company's gene sequencing segment revenue growth in 2025 is expected.

Gradually entering the period of consumables volume, reflecting product competitiveness

In the first three quarters of 2024, the gene sequencer business was divided according to product type, and the revenue of instruments and equipment was 580 million yuan; The revenue of reagent consumables was 960 million yuan. Among them, Q3 instrument and equipment revenue was 170 million yuan, down 19% year-on-year and month-on-month; The revenue of reagent consumables was 360 million yuan, down 11% year-on-year and up 5% month-on-month. The month-on-month growth rate of consumables is higher than that of instruments, the frequency of instrument use/consumables consumption increases, the market acceptance of products gradually increases, and gradually enters the consumables volume period. We believe that with the increase in instrument usage, consumables are expected to continue to increase in volume, resulting in increased revenue and gross profit margin.

R&D investment continues, promotes product innovation and iteration, and further enhances the company's competitiveness.

2024Q1-3 The company's R&D expense ratio was 29.6%, an increase of 0.5pct year-on-year, and the high investment in R&D expenses continued. We believe that as an emerging sector, there are many new entrants in gene sequencers, and R&D investment will help the company's product innovation and iteration and enhance product competitiveness. MGI, as a domestic leader in the gene sequencing sector, is in the R&D investment period of rapid launch of new products and expansion of product matrix: due to the limitation of product types and channels, MGI's main customers in 2019 were still concentrated in related companies such as BGI (70%) and Geinga (5%), and after 2019, MGI accelerated the expansion of customers with the launch of the first portable product. In 2022, MGI launched a variety of products for portable applications, including the portable low-throughput gene sequencer E25 and the desktop low- and medium-throughput gene sequencer G99, and in 2023, the company's flagship innovative product DNBSEQ-T20×2 was launched, with a throughput of 42Tb (PE100) or 72Tb (PE150) in a single run, setting a new industry sequencer throughput record and reducing the cost of genome testing to $100 per person, achieving the best cost of scale. We believe that the gradual improvement of the company's products is expected to boost the rapid increase in domestic and foreign market share.

Earnings Forecast and Valuation

Considering the changes in the domestic and foreign environment and the slow recovery of demand, as well as the company's continued high sales, R&D and management expenses, we believe that the company's loss in 2024 may still be large, and the company's profit forecast is lowered, and the company's revenue in 2024-2026 is expected to be 25.28/30.24/3.609 billion yuan, a year-on-year increase of -13.16%, 19.64% and 19.34% respectively; The net profit attributable to the parent company was -5.78/-3.32/0.01 million yuan, corresponding to 7 times PS in 2025, maintaining the "overweight" rating.

Risk Warning: The

risk of intensifying market competition; the risk that the commercialization of the product is less than expected; Risks of changes in the international environment.