Event: In 2022, Elken Healthcare achieved revenue of 1,052 million yuan, up 38.2% year on year; achieved net profit of 205 million yuan, up 121.1% year on year; among them, hip implants achieved revenue of 655 million yuan, up 39.5% year on year, accounting for 62.3% of revenue; knee implants achieved revenue of 266 million yuan, up 59.2% year on year, accounting for 25.3% of revenue; spine and trauma implants achieved revenue of 0.6 million yuan, down 24.3% year on year, accounting for 5.7% of revenue; customized products The service business achieved revenue of 47 million yuan, an increase of 101.3% over the previous year, accounting for 4.5% of revenue.
Rapid recovery from joint replacement surgery in the post-pandemic era: In the fourth quarter of 2022, in the context of COVID-19 infection, elective surgeries such as total knee replacement were delayed. Total hip injury is related to traumatic factors such as osteoarthritis and femoral head necrosis. Total knee problems are often accompanied by extended life expectancy. We believe that many total knee surgeries will be moved far back to 2023. We are optimistic that demand for joint replacement and repair surgeries will resume throughout the year.
The second reporting of joint national procurement is conducive to accelerated substitution of domestic production: after joint procurement, foreign manufacturers gave agents limited profit margins, and agents strengthened cooperation with domestic manufacturers. Recently, Joint National Procurement began the second reporting process for hospitals. Using the 2022 report and usage as the base, foreign manufacturers have insufficient supply due to lack of stock and other reasons. It is expected that more hospitals will increase reports from domestic manufacturers, which is beneficial to leading joint manufacturers.
Investment advice: We expect the company to achieve operating income of 1,418/18.41/2357 million yuan in 2023-2025 and net profit of 267/345/454 million yuan. The corresponding PE was 38.43/29.69/22.57 times, respectively. It was covered for the first time and gave an “increase in holdings” rating.
Risk warning: The implementation progress of joint belt volume procurement has fallen short of expectations; joint renewal prices have declined; the epidemic has repeatedly affected the development of elective surgeries.