Performance review

The company's first-half performance was lower than market expectations.

The company announced 1H23 results: revenue was 225 million yuan, down 3.0% from the same period last year; net profit from home was 110 million yuan, corresponding to 0.61 yuan per share, an increase of 5.5% over the same period last year; non-net profit from mother deduction was 110 million yuan, up 6.0% from the same period last year, which was lower than market expectations, mainly due to the termination of implant agency business by the company, and some products were reduced due to collection and other reasons.

Trend of development

The company's net profit increased by 15.0% to 56.44 million yuan in the second quarter compared with the same period last year. In the second quarter of 23, the company's revenue increased by 1.5% to 115 million yuan compared with the same period last year, while the non-net profit deducted from the mother increased by 15.9% to 56.24 million yuan. The gross profit margin in the second quarter was 90.8%, a year-on-year growth of 3.3ppt/ and a month-on-month growth of 1.0ppt. We believe that it is mainly due to the company's strengthening internal management and further improving quality and efficiency.

We expect the oral plate products to improve in the second half of the year. In the first half of 2023, the company's income from dental repair film was 106.0467 million yuan, a decrease of 3.6% compared with the same period last year. We believe that it is mainly due to the lower-than-expected increase in the number of dental implants in the dental industry. The sector's first-half gross margin was 90.3%, a slight drop in 0.8ppt compared with the same period last year. We expect this sector to expand in the second half of the year as the number of implants resumes growth.

In the first half of 2023, the products of absorbing dura mater patch resumed the growth trend, and the collection was successfully selected.

In the first half of 2023, the product revenue of this sector was 90.9314 million yuan, an increase of 6.1% over the same period last year. The sector's first-half gross profit margin was 92.7%, an increase of 1.3ppt over the same period last year. According to the announcement of the company's semi-annual report in 2023, the company's products successfully won the bid in the continuous procurement carried out in Jiangsu Province in June 2023; in addition, in July 2023, the product was also selected in the inter-provincial alliance procurement in Liaoning Province.

The company actively arranges new products. According to the company announcement, as of July 31, 1) the company's active biological bone products have been approved in October last year and have been connected in 10 provinces. 2) the national clinical trial of calcium-silicon biological ceramic bone repair materials has been completed. 3) Breast patch and uterine cavity repair membrane products are in the stage of clinical trial.

Profit forecast and valuation

Considering that the company has terminated the implant agency business and the collection of some products will gradually fall to the ground in the future, we downgrade the 2023 net profit forecast of 19.9% to 204 million yuan, and we introduce the 2024 net profit forecast of 249 million yuan for the first time. The current share price corresponds to 30.5 times 2023 earnings and 25.0 times 2024 earnings. We maintain an outperform industry rating, but due to the lower earnings forecast, we cut our target price by 21.6% to 47.8 yuan, corresponding to 42.3 times 2023 price-to-earnings ratio and 34.6 times 2024 price-to-earnings ratio, which is 38.5% upside from the current stock price.

Risk

Product R & D registration is not as expected, new product promotion is not as expected, and the implementation of volume procurement policy is higher than expected.