Incidents:

On March 30, the company released its 2021 annual report. It achieved operating income of 1,994 million yuan in 2021, an increase of 25.68% over the previous year, and achieved net profit of 673 million yuan to the mother, an increase of 11.17% over the previous year.

Net profit returned to the mother after deduction was 616 million yuan, an increase of 11.48% over the previous year.

Commentary:

Steady growth in operations and consolidation of existing product advantages

In 2021, the revenue of the company's main product lines continued to grow. By business: 1) Traumatic products achieved revenue of 1,128 billion yuan, an increase of 14.97% over the previous year. The company's three products, including its intramedullary nail system, all won bids in the procurement of orthopedic trauma consumables in 12 provinces led by Henan Province and others in July 2021. 2) Spine products achieved revenue of 565 million yuan, an increase of 53.14% over the previous year. Combining the trend of minimally invasive clinical spine surgery, the company acquired Beijing Andesipro to accelerate product portfolio development, promotion and application, enhance technical barriers, and consolidate its position in the high-end market. 3) Minimally invasive surgical products achieved revenue of 150 million yuan, an increase of 34.20% over the previous year. The company's layout covers channel series, anastomosis series, ligation series and artificial intelligence to create a diversified line of surgical instruments. 4) Neurosurgical products achieved revenue of 43.82 million yuan, an increase of 14.93% over the previous year. The company's skull repair and reconstruction system has obtained a registration certificate and will enrich and improve the neurosurgery product line.

The scope of orthopedic collection has been expanded, and the orthopedic medical device industry is developing healthily. On June 21, 2021, the National Organization High Value Medical Consumables Joint Procurement Office issued the “National Organization Artificial Joint Volume Procurement Notice (No. 1)”, marking the official launch of the national collection of orthopedic consumables. In July and September, the 12 provincial procurement alliances led by Henan Province and the National Consumables Collection Center collected orthopedic trauma and joint products separately. The company's products all won the bid. At present, many provinces and provincial and municipal alliances have implemented volume procurement of some orthopedic medical device products. Promoting the collection of orthopedic consumables is conducive to the long-term healthy development of the industry and promotes the transformation of orthopedic consumables enterprises to standardization and scale.

Lay out multiple product lines to build a comprehensive medical consumables enterprise

In 2021, the company obtained three types of registration certificates for implant systems in terms of dental product lines, and related materials and technology are at the leading level in China. As the scope of procurement of orthopedic consumables continues to expand, the company will use high-value orthopedic implants as its main business, expand the scale and categories of other orthopedic products, expand the field of high-value medical consumables, and build a platform-based company in the field of high-value consumables.

Profit forecast and investment rating: We expect the company's revenue for 2022-2024 to be 2,584/32.37/4.204 billion yuan respectively, and the net profit of the mother is 926/1,286/1,653 million yuan respectively. Maintain a “buy” rating.

Risk warning: Risk of R&D progress falling short of expectations, sales promotion falling short of expectations, and core products not winning bids in volume procurement