Adicon Earnings: Cutting Valuation by 17% Following Result Miss and Lack of Industry Visibility

Adicon's 2024 revenue declined 11.6% annually, lower than our expected 1% decrease. The miss was largely driven by a higher base from 2023 due to covid-related sales and a 6.1% lower average selling price. Consequently, the 2024 gross margin of 37.7% is 2.7 percentage points lower than our initial assumption. We adjust our 2025-27 forecasts accordingly, as the near-term industry visibility is currently low. Hence, we cut our fair value estimate for no-moat-rated Adicon to HKD 8.20 per share from HKD 9.90. However, our view of Adicon benefiting from growing opportunities as China’s smaller hospitals outsource laboratory work remains unchanged, and we still think Adicon is worth owning over the long run.