Sticking to evaluating the value and potential of listed companies based on their annual financial data is often like a blind man's elephant.
Recently, BGI (300676. SZ) has published its audited 2023 financial results. Although the company's performance indicators have fluctuated significantly year-on-year, this does not indicate the exhaustion of its growth momentum.
We believe that in the short term, we will see adjustment, stable growth in the medium term, and innovation in the long term, and in these three dimensions, BGI still has enough certainty.
In fact, the global gene sequencing service industry is in a weak cycle of market conditions, and the sequelae of overheated industry investment in the past few years have also amplified the recession of the industry, which is the basic industry background.
At this stage, for listed companies in the industry, the fastest and most effective change is from financial and operational adjustments. From BGI's annual report announcement, we can also find that the company has adopted a series of adjustment plans in response to the current industry situation.
Returning to the value embodiment of listed companies, growth is still the source of the company's medium-term bullishness.
Since human genome sequencing has reached the $100 cost range in the past year or two, the potential for large-scale application of gene sequencing services has opened up new space.
Therefore, as "one of the world's leading scientific and technological service providers and precision medical service operators", BGI's solid medium-term growth fundamentals have enough room for development, depending on how the company can grasp new market opportunities more agilely.
Aerial view of BGI headquarters Source: Internet
There is also a sentence hidden in BGI's 2023 annual report: Looking forward to future development, BGI will be committed to improving the productivity of life sciences with new technologies. This is the core thread that lays the foundation for the company's long-term development.
The new economic form of life science development and popularization has been included in the national strategic plan. In the "14th Five-Year Plan" for the development of the bioeconomy, it is clearly stated that it will adhere to innovation-driven, accelerate the breakthrough of the bottleneck of bioeconomic development, and realize the foundation of scientific and technological self-reliance and self-reliance.
Isn't this exactly the "new quality productivity" that is currently being hotly discussed? Isn't this the key factor for the future growth of BGI, the leading domestic gene chain leader.
In short, in a weak cyclical market, a leading company like BGI is easy to highlight its value.
1. Reduce costs and increase efficiency
Weak cycle adjustment
The performance in 2023 is not a difficult problem for BGI, but a common dilemma faced by the entire industry.
In fact, due to the impact of the special market in the past two years to push up the growth base of relevant listed companies, the operating performance of listed companies in the secondary classification of pharmaceutical biology - medical services has declined sharply on a large scale.
In the past year, news of layoffs and bankruptcy of global genetic companies has been reported from time to time. Even the absolute giants Illumina will lose $1.16 billion in 2023, and the company will have to "reduce costs and increase efficiency" by laying off 12% of its workforce globally.
When the industry is weak, small and medium-sized companies generally face the problem of survival, while the leading companies in the industry have more room to maneuver. Against this backdrop, BGI's solid business performance and industry leadership are particularly important.
Source: BGI 2023 ESG Report
There is no doubt about BGI's position in the domestic industry, and looking at the global market, BGI is also a top-level gene company, not only with core sequencing technology and a large number of patents, but also a company that can cover the whole industry chain and all application fields in the industry.
Focus: the ability of the whole industry chain. Today, we see that the reason why many of China's industrial fields can lead the world is precisely because of the independent and controllable complete industrial chain layout.
The gene sequencing industry is developing in the same way. BGI's ability to carry out the whole industry chain enables the company to have more room for adjustment than its peers after entering the weak cycle of the industry.
On April 15, in the face of inquiries from many institutional investors, the management of BGI also stated at the performance briefing that the company will "continue to carry out 'lean management, improve quality and efficiency', strengthen cost and expense control, improve operational efficiency, actively do a good job in cross-cycle adjustment, and build a new engine for high-quality development based on the new stage of development".
In the past 2023, the company has made a series of measures to "improve quality and efficiency", such as implementing structural optimization of the organizational structure and R&D department to improve the company's operational efficiency, profitability and resource allocation capabilities.
Through some specific financial indicators, we can also observe the results of the company's adjustment: in 2023, the cash flow generated by BGI's operating activities will reach 409 million yuan, an increase of 212.3% from 131 million yuan in the previous period, and the marketing and sales expenses will decrease from 1.607 billion yuan in the previous period to 1.036 billion yuan, a decrease of 35.53%.
The amplification of operating cash flow means that BGI has further raised the threshold of financial security, and the control of expenses is the most obvious place for it to "improve quality and efficiency" in the short term.
II. Broaden financial resources
Tap the potential growth momentum
BGI's proactive adjustment to market conditions in the short term is biased towards "throttling" to increase efficiency, but continuous "open source" is the quality improvement measure to ensure that the company has sustainable growth momentum.
At the performance briefing, the company's core management also said that in order to ensure that the company maintains a leading position in the fierce market competition and lays the foundation for sustainable development, the company actively explores a variety of business models and growth paths.
At present, BGI has formed five business lines, including reproductive health, tumor and chronic disease prevention and control, infection prevention and control, multi-omics big data service and synthesis business, and precision medicine testing integrated solutions, building the foundation of the company's growth and bringing a diversified business model to the industry.
Source: BGI 2023 ESG Report
These five lines cover different scenarios of clinical medical testing applications, but their underlying technologies are the same and have a synergistic effect on R&D investment, so they will not lead to a significant increase in the company's R&D efforts and costs.
In the corresponding annual reporting period, the five major businesses of BGI achieved revenue contributions of 1.178 billion yuan, 525 million yuan, 516 million yuan, 707 million yuan and 1.407 billion yuan respectively.
A closer look at each business unit reveals some bright spots. For example, reproductive health and the prevention and control of tumors and chronic diseases are the "engines" of BGI's steady growth.
In terms of reproductive health business, BGI recorded a business growth of 1.178 billion yuan and a year-on-year increase of 5.55% in 2023, thanks to the carrier screening and testing business in primary prevention (a year-on-year increase of 42.45%) and the neonatal genetic disease genetic screening business in tertiary prevention (a year-on-year increase of 45.52%).
Although the number of births in China continues to decline, it can also be seen from this growth data that there is still a market potential for gene sequencing services in the field of reproductive health.
In the two popular business areas of cancer prevention and control and chronic disease prevention and control, BGI has made an adjustment of "merging similar items", and the company's "tumor and chronic disease prevention and control business" has achieved a year-on-year growth of more than 30% in 2023.
Especially in the field of cancer screening, the company's colorectal cancer genetic testing business has recorded an ultra-high growth of nearly 90%. Its non-invasive colorectal cancer detection product Huachangkang was certified at the end of last year (domestic market), which undoubtedly brought guarantee for further expansion;
In addition, in the tumor recurrence detection, liver cancer detection and hereditary tumor gene testing business, BGI recorded growth rates of 57.75%, 44.54% and 36.45% respectively, and continued high growth can also be expected.
Source: BGI 2023 ESG Report
The more fierce the competition, the more it tests the ability of enterprises to seize opportunities. BGI's diversified business layout also enables it to capture market opportunities faster and more agilely.
Even if we look at the leopard, we also see more certainty in BGI's business model and growth path.
3. Key points
New qualitative productivity factors
From a more macro perspective, the gene sequencing industry is at a historic turning point.
As for why the growth of the gene sequencing industry is not as good as the investment expectation of the year, the mainstream argument is that the application scope and commercialization scale of gene technology services are trapped by the cost of sequencing, so they have not been fully opened.
However, as high-throughput sequencers began to enter the process of full commercialization, the cost of genome sequencing has been erased by 8 "zeros" compared with 20 years ago, from $3.8 billion to less than $100.
A grand picture of life sciences is unfolding. Whether it's decoding diseases, developing drugs, or improving the quality of human life, revolutionary technological breakthroughs will emerge.
In the national "14th Five-Year Plan" for the development of the bioeconomy released in 2022, the government has a clear statement: it is necessary to build a national biotechnology strategic scientific and technological force, accelerate the breakthrough of the bottleneck of bioeconomic development, and achieve scientific and technological self-reliance and self-reliance.
Source: CCTV2 Financial Channel
That is to say, based on the development and progress of life sciences and biotechnology, and the popularization and application of new economic forms, the bioeconomy has been listed as an important part of the national economy by the state.
The new industries, new models and new kinetic energy spawned by the related disruptive technologies and cutting-edge technologies will converge into new qualitative productivity for the high-quality growth of China's bioeconomy.
From the perspective of building a modern industrial system and protecting people's lives and health, BGI's gene sequencing service field, as an important tool for the development of life sciences, cannot be just the icing on the cake technology application, and will inevitably represent the development direction of new quality productivity in this field.
At present, the convergence of various cutting-edge new technologies also brings greater development space for the gene sequencing industry.
Also at the performance briefing on the 15th, the management of BGI made such a statement: the company's high-performance big data analysis and storage platform all-in-one machine HALOS, bioinformatics cloud computing platform and multi-omics data mining system Dr. Tom will play an increasingly significant role.
In fact, the integration and innovation of artificial intelligence models and multi-omics data has become an inevitable option to promote the transformation of gene sequencing companies into intelligent services, and BGI itself has accumulated advantages in the field of multi-omics big data and bioinformatics for a long time.
In terms of product R&D and technological innovation, BGI has also made breakthroughs one after another in the past year:
The HALOS tumor gene detection data analysis and interpretation all-in-one machine was launched, the PMseq® CNV analysis process and drug resistance database were newly upgraded, the non-invasive prenatal detection technology for 200+ dominant monogenic diseases was launched for reproductive health, the new tNGS detection product "PTseq and PTseq Plus Targeted High-throughput Genetic Testing for Respiratory Tract Infection Pathogenic Microorganisms" was released for infection prevention and control, and in the prevention and control of chronic diseases, Alzheimer's disease risk gene testing (APOE genotyping test), Premature coronary heart disease risk gene testing, cardiovascular disease drug gene testing, cognitive impairment disease gene testing products, and nervous system autoimmune antibody testing products were officially launched .......
A closer look at the above-mentioned new products or technologies are all concentrated on the advantageous track of BGI's business line. In the future, the further integration of new tools such as AI and multi-omics platforms will surely produce more new products and technologies faster.
Source: BGI 2023 ESG Report
In the 2023 annual report, BGI still increased R&D investment while facing huge operating pressure, with an annual R&D investment of 614 million yuan still increased by 3.65% year-on-year, accounting for 14.12% of total revenue.
Undoubtedly, this is the most important "starting point" for BGI to continue to improve the role of new quality productivity factors and ensure the abundant momentum of long-term growth.