Company Reports

Adicon is China’s third-largest independent clinical laboratory, or ICL, in terms of clinical testing revenue. Unlike some of its competitors, Adicon is a pure play and does not sell testing products. Following the entry of Carlyle Group as a major shareholder in 2018, Adicon has expanded its operations to its current portfolio, testing 4,000 items in 2023. It aims to continue deepening its network by building self-operated laboratories and co-developing labs with hospitals or medical institutions. Given China's low ICL penetration rate of around 7% compared with about 35%-65% in established markets such as Japan, Europe, and the US, we believe that Adicon has ample room for growth. As such, our projected five-year revenue compound annual growth rate is 8.1%.

We initiate coverage on Adicon with a no-moat rating and a fair value estimate of HKD 11.40 per share, indicating an upside potential of around 30%. Adicon is the third-largest independent clinical laboratory in China, with 36 centralized labs and over 4,000 test items available as of 2023. We think Adicon is undervalued. In our view, it is worth buying in the long run due to the long-term secular tailwind of an underpenetrated ICL rate in China and increasing demand for outsourced testing.