The performance of 2023Q1 exceeded expectations, and the volume of the Q2-Q4 stapler can be expected. Maintaining the “buy” rating. On April 20, 2023, the company released the first quarter report of 2023: achieved revenue of 158 million yuan (+61.55%), net profit of 5.02 million yuan (+421.75%), net profit of non-return mother of 44.39 million yuan (+1658.88%), the overall revenue and profit growth rate exceeded expectations; the overall cost rate was 28.51% (-10.53pct), sales expenses rate 13.39% (-) 5.56pct), management expense ratio 9.80% (-2.25pct), R&D expense ratio 5.47% (-2.43pct), net interest rate of return to mother is 31.69%, net interest rate after deducting net investment income is still as high as 27.51%. Related expenses are well controlled, scale effects are prominent, and there is long-term inertia in the high-end product structure. (1) There are four positive factors in the childcare business — the increase in the share of domestic revenue/the accumulation of large demand for equipment replacement during the pandemic/high-end equipment modernization/interest rate discount policy support; (2) the stapler business has three positive factors — the increase in the number of surgeries in 2-3 months, the resumption of diagnosis and treatment, the increase in the number of hospitals admitted/the increase in the number of hospitals admitted/continued high growth overseas. Taking into account the long-term inertia of the childcare business and demand for stock replacement and upgrading, and driven by the volume of matching policies, we raised the profit forecast of 155/231/326 million yuan for 2023-2025. It is estimated that the net profit to the mother for 2023-2025 will be 182/256/359 million yuan respectively, and EPS will be 0.63/0.89/1.25 yuan respectively. The P/E corresponding to the current stock price is 29.9/21.3/15.2 times respectively, maintaining the “buy” rating.

Endoscopy and electrification of anastomoses are already a general trend. The collection policy is expected to increase the penetration rate and localization rate of electric kisses. The current localization rate of the electric endoscopic stapler circuit is low, the growth rate is fast, the space is large, and the competition pattern is good. There is still a big gap between China's minimally invasive rate and developed countries. Minimally invasive surgery is the general direction of certainty, while endoscopic staplers are an important surgical instrument for minimally invasive surgery. Among them, electric endoscopic staplers will be the general trend because of their clinical value. Stapler collection is expected to rapidly increase the penetration rate of electric staplers and accelerate domestic substitution. Among them, the results of the Fujian Provincial Alliance collection policy have yet to be implemented, and the Shandong, Beijing-Tianjin-Hebei 3+N Alliance collection is poised to begin.

The subsidiary Welkady has been in the market and technology for a long time. It is expected that it will use the power of collection to speed up the release of staplers. The company obtained the first electric endoscopic stapler registration certificate in China in 2018. Currently, there are 4 registration certificates, of which 1 is Class III (there are only 3 in China). The Class III certificate is superior in the scope of application of surgery and can close broken blood vessels. After 4 years of marketing and academic education, the company has now covered more than 300 top three hospitals. The company's electric endoscopic stapler revenue in 2022 was 152 million yuan (accounting for 77% of the stapler business), and launched the world's first intelligent fully automatic turning stapler, further boosting the electric stapler racetrack moat. At the same time, the company is expected to use alliances and provincial procurement efforts to speed up entry, rapidly increase hospital coverage, break through provinces with weak sales, and seize the share of importers. Some overseas stapler markets have been successfully incubated. The base is relatively low, and it is expected that rapid growth will continue.

Risk warning: Product promotion falls short of expectations, and policy implementation falls short of expectations.