With an in-depth presence of 37 years in medical polymer consumables, Gongdong has become the industry leader in China. In the short term, the commissioning of new capacity is likely to drive the Company into a new round of rapid development. In the medium term, its customized in vitro diagnostic (IVD) consumables boast an excellent business mode and prospects of rapid growth. In the long term, internationalization and category expansion will continue to fuel new growth headroom. We forecast 2022E/23E/24E revenue of Rmb1.57bn/2.07bn/2.73bn (+31%/32% /32% YoY) and attributable net profit (ANP) of Rmb410mn/ 540mn/710mn (+30%/33%/32% YoY), corresponding to EPS of Rmb3.59/4.78/6.32 and 37x/27x/21x 2022E/23E/24E PE at the current price. We assign 45x 2022E PE to derive a target price of Rmb162 and a market cap of Rmb18.2bn. We initiate the coverage with a "BUY" rating.

A domestic IVD polymer consumables leader with 37 years of efforts Gongdong has an early start with comprehensive product matrix. It focuses on the research and development (R&D), production and sales of medical polymer consumables. In 2021, the Company achieved revenue of Rmb1.194bn (+44% YoY) and ANP of Rmb311mn (+38% YoY), of which the revenue from customized IVD consumables reached Rmb382mn (+169% YoY). Excluding the impact of the Covid-19, the compound annual growth rate (CAGR) from 2019 to 2021 reached 47%. The chairman SHI Huiyong is the vice president of China Association for Medical Devices Industry (CAMDI) IVD branch, owning abundant industrial resources, whose family controls 69.58% of shares as of Mar 31, 2022. The management team, with solid capability of production and R&D, has received sufficient incentives through holding shares via employee stock ownership plan (ESOP).

Short term: Significant advantages in the whole process, the new capacity drives the performance upward quarter by quarter.

Consumable development involves three core technologies of mold development, product injection molding and product design process.

Gongdong boasts competitive edge in medical polymer consumables R&D, and has built technical barriers in aforementioned technologies. Its abundant orders have strained the original production capacity. Generally, the domestic and foreign revenues of the Company each account for half of the total revenue. In 2021, affected by the pandemic, the revenue structure was changed and the new factory was put into operation in 1Q22 and the capacity ramped up since Mar, which we expect to achieve full production by the end of this year and drive the performance of year 2022 upward quarter by quarter.

We expect that the overall capacity can generate Rmb3bn of annual revenue by the end of 2024 and the robust growth will likely last for three years.

Medium term: Customized IVD consumables business mode is the new driving force.

The business mode of customized IVD consumables is similar to contract manufacture organization (CMO), with cooperation in R&D and ramp-ups in the shipment during materialization. This mode has a deep tie to customers.

We estimated that the global customized IVD consumables market in 2019 reached about US$3bn, while the domestic market was about Rmb3bn.

During the pandemic, the industry expanded significantly, with the domestic market increasing to about Rmb4.2bn in 2021. The Company benefits remarkably from the three factors including market acceleration of concentration, export substitution and transferring of the industries driven by the pandemic. Customized IVD consumables contributed Rmb382mn to the revenue in 2021 with a CAGR of 133% in 2019-21. Gongdong has dual-drivers for its development: In domestic market, through the synergy of technologies and channels, as well as the resources held by its chairman, the Company has obvious first-comer advantages. The domestic market shares of its customized consumables business increased to 9.1% in 2021 from 2.4% in 2019; In overseas market, Gongdong uses newly-built capacity to fulfill the order delivery on time. Based on the current planning for overseas factories, the Company is likely to achieve breakthrough cooperation with major overseas customers by the end of the year.

Long term: Internationalization & category expansion continue to expand headroom of growth.

Gongdong is actively building its presence in the fields of general low-value consumables, pharmaceutical packaging materials and cell culture to expand product lines. In terms of low-value consumables, Covid-19 has prompted OEMs to enter the supply chain of low-value consumables in overseas markets which is worth looking forward to; In terms of pharmaceutical packaging materials, like the business model of customized IVD consumables business, the joint review of the Company's pharmaceutical packaging products and drugs of other companies enhance the binding with downstream customers. Presently, remarkable results have been achieved for pilot trials.

According to Frost & Sullivan data (quoted from the prospectus of Jet Biofiltration), the global market size of cell culture consumables exceeded US$10bn in 2018. We expect this business to have considerable growth space in the future.

Potential risks: Repeated Covid-19 flare-ups; market expansion falling short of expectations; price reduction and fee control; new product release missing expectations; new production capacity not up to expectations; raw material price fluctuations; exchange rate fluctuations.

Investment recommendation: With an in-depth presence of 37 years in medical polymer consumables, Gongdong has become the industry leader in China. In the short term, the commissioning of new capacity is likely to drive the Company into a new round of rapid development. In the medium term, its customized in IVD consumables boast an excellent business model and prospects of rapid growth. In the long term, internationalization and category expansion will continue to fuel new growth headroom. We forecast 2022E/23E/24E revenue of Rmb1.57bn/ 2.07bn/2.73bn (+31%/32%/32% YoY) and ANP of Rmb410mn/540mn/710mn (+30%/33%/32% YoY), corresponding to 2022E/23E/24E EPS of Rmb3.59/ 4.78/6.32 and 37x/27x/21x PE at the current price. We adopt PE valuation method and take Changhong Technology (300151.SZ) and Jet Biofiltration (688026.SH) as comparable companies. Based on the average valuation of 38x 2022E PE (Wind consensus estimates) for comparable companies, and considering the production release cycle and prudent performance growth visibility, we assign 45x 2022E PE to derive a target price of Rmb162 and a market cap of Rmb18.2bn. We initiate the coverage with a "BUY" rating.