Core views:

The 2022 results were under short-term pressure, and the Q23 Q1 performance recovered rapidly. In 2022, the company achieved operating income of 3.119 billion yuan, an increase of 0.70% over the previous year; net profit of the mother was 312 million yuan, an increase of 6.97% over the previous year; after deducting net profit of 292 million yuan, an increase of 13.39% over the previous year, in line with market expectations. Looking at a single quarter, Q4 achieved operating income of 720 million yuan in '22, a year-on-year decrease of 18.44%, a year-on-year decline of 55.79 million yuan, a year-on-year decline of 28.98%, net profit of non-return mothers of 62.34 million yuan, an increase of 12.48% over the previous year), mainly due to Q4 being affected by the epidemic and fluctuations in overseas markets.

Operations gradually returned to normal in Q23, and the profit side performed well. The Q1 business recovered well in '23, achieving revenue of 687 million yuan (yoy -20.82%), net profit of 85.12 million yuan, an increase of 20.08% over the previous year; after deducting net profit of 81.96 million yuan, an increase of 31.22% over the previous year.

The decline in revenue is mainly due to the exit of subsidiary Condley Medical Devices. Domestic business has basically returned to normal, and overseas business is expected to gradually resume.

Product upgrades are iteratively combined with the gradual introduction of new products, and gross margin is expected to increase further. The company achieved a gross profit margin of 33.68% in '22, a year-on-year decrease of 4.7pct. In Q1 '23, the company achieved a gross profit margin of 34.40%, an increase of 0.72pct compared to '22. In '22, the company upgraded and iterated on products such as biopsy needles, rinsing needles, dental needles, safety needles, and blood collection needles. Products such as safe blood collection needles, fully automatic biopsy needles, etc. have completed clinical trials and submitted registration. Single-use visible blood collection needles and disposable injection pen needles have obtained registration certificates; in addition, the company's specialty and medical aesthetic product lines will be further enriched. Gradual product upgrades and new product launches are expected to further increase the company's gross margin.

Profit forecasts and investment recommendations. The company's 23-25 results are expected to be 0.96 yuan/share, 1.16 yuan/share, and 1.32 yuan/share, respectively, corresponding to PE15.00x/12.45x/10.93x. We have maintained our opinion on a reasonable value of 22 yuan/share (corresponding to 23 times PE in 23 years) and maintain the “buy” rating.

Risk warning. Policy risks such as harvesting; business model development is limited; industry competition is intensifying.