Main points of investment:

In the first half of 2023, the company achieved operating income of 334 million yuan, an increase of 51.55% over the same period last year; net profit of 108 million yuan, an increase of 169%; and net profit of 94.77 million yuan, an increase of 269.41% over the same period last year. The net cash flow generated by operating activities was 100 million, a substantial increase of 450.10% over the same period last year. Basic earnings per share is 0.68 yuan.

The company is a leading R & D enterprise in the domestic rehabilitation medical equipment industry. The main layout of rehabilitation assessment (including assessment of muscle strength, neurological disorders, degree of functional loss, etc.), training and rehabilitation (including exercise, active and passive training and other rehabilitation training equipment), physiotherapy equipment (including acousto-optic calorimetry equipment, physical rehabilitation medical equipment), nursing equipment, auxiliary equipment series five major types of business. By the first half of 2023, the company had obtained a total of 293 medical device registration certificates / filing certificates.

Rehabilitation medical support policies have been introduced intensively. In June 2021, eight ministries issued "opinions on accelerating the Development of Rehabilitation Medical work", which mentioned the need to strengthen the construction of rehabilitation medicine disciplines in rehabilitation hospitals and general hospitals. It is necessary to scientifically co-ordinate the resources of public medical institutions and social medical institutions in the region, and reasonably increase the number of rehabilitation hospitals. In principle, every provincial capital city and prefecture-level city with a resident population of more than 3 million has at least one rehabilitation hospital at or above the second level; at least one county-level public hospital with a resident population of more than 300000 has set up rehabilitation medicine departments; at least one county-level public hospital with a resident population of less than 300000 has set up rehabilitation medicine outpatient clinics. In December 2021, 10 ministries, including the Ministry of Industry and Information Technology, jointly issued the 14th five-year Plan for the Development of Medical equipment Industry, focusing on acupuncture, moxibustion, rehabilitation and other traditional Chinese medicine equipment, maternal and child health and health care and rehabilitation equipment. In January 2022, the National Health Commission, the National Office of Aging and the State Administration of traditional Chinese Medicine jointly issued the Circular on comprehensively strengthening Health Services for the elderly, encouraging some primary and secondary hospitals in areas rich in medical resources to transform into nursing homes and rehabilitation hospitals, and encouraging multi-party financing for the construction of community-based and chain rehabilitation centers and nursing centers. Encourage qualified primary medical and health institutions to set up and increase the number of beds providing elderly care and rehabilitation services as needed, and encourage secondary and above general hospitals to provide rehabilitation medical services. In July 2022, 11 departments, including the National Health Commission, jointly issued the guidance on further promoting the Development of the combination of Medicine and Nursing. It clearly pointed out that all localities should optimize the distribution of medical resources and strengthen the construction of rehabilitation hospitals, nursing homes (centers and stations) and hospice care institutions by means of new construction, reconstruction, expansion, transformation and development. In February 2023, the General Office of the National Health Commission issued the National Medical quality and Safety improvement goal of 2023 and the quality control work improvement target of various specialties in 2023, which clearly required to "improve the early rehabilitation intervention rate of inpatients". In the core strategy, it is proposed to establish an early rehabilitation intervention multidisciplinary team composed of rehabilitation medicine, orthopaedics, neurology, critical medicine and other clinical departments. Work according to the clinical rehabilitation integration model "," clarify the relevant quality control data extraction, monitoring methods and evaluation mechanism, and bring the target improvement into the department performance evaluation ". It provides specific guidance and suggestions and the basis of data monitoring and evaluation mechanism for the standardized development of clinical rehabilitation integration in the whole hospital. In April 2023, the National Health Commission issued the Circular of the General Office of the National Health Commission on further promoting the work related to Rehabilitation surgery. In May, the State Administration of traditional Chinese Medicine and the State Health Commission jointly issued the Circular on carrying out actions to comprehensively improve Medical quality (2023-2025), in which the improvement of "early rehabilitation intervention rate" was included in the monitoring index system of action effect in various provinces from 2023 to 2025. The intensive introduction of national policies will promote the rapid development of the field of rehabilitation medicine at the national level.

In the post-epidemic era, the demand for rehabilitation recovered rapidly. In 2022, the impact of the epidemic, rehabilitation, personnel and equipment, and the construction of departments were all stalled and delayed, and the recovery was accelerated after the epidemic. In the second quarter of 2022, the company achieved operating income of 192 million yuan, an increase of 34.27% over the first quarter, an increase of 41.09% over the same period last year, and a net profit of 70 million yuan, an increase of 84.21% over the first quarter and 128.65% over the same period last year. While the performance increased significantly, the company's sales expense rate in the first half of the year was 23.35%, down 8.13% from the same period last year; the management expense rate was 19.17%, down 9.1% from the same period last year; the decline in sales expense rate and management expense rate also reflects the exuberant demand for the company's products. The financial expense rate was-4.07%, an increase of 1.9% over the same period last year, but still negative.

Taking into account the increasing degree of aging in China, coupled with policy support, China's rehabilitation market will still show a trend of accelerated growth. According to the company's report data, KPMG (KPMG) predicts that the market size of China's rehabilitation medical industry will exceed 200 billion yuan by 2025.

As a leader in R & D in the industry, Xiangyu's future performance growth is expected.

On July 19, the company launched the 2023 restricted stock incentive plan, which intends to grant 1.8 million restricted shares to the incentive target, accounting for 1.125% of the company's total share capital at the time of the draft announcement. The first award price is 32 yuan per share. It is about 20% discount on the closing price of 39.65 yuan per share on August 11. According to the plan, the performance evaluation target set by the company in 2023 is: based on operating income in 2022, the growth rate of operating income in 2023 is not less than 50%; or on the basis of net profit after deducting non-recurrent profit and loss in 2022, the growth rate of net profit after deducting non-recurrent profit and loss in 2023 is not less than 70%. The equity incentive scheme demonstrates the company's confidence in its future development. On August 11th, the company announced that it planned to use over-raised funds to buy back the company's shares in the form of centralized bidding. The total repurchase capital shall not be less than 80 million yuan (inclusive), the repurchase price shall not exceed 160 million yuan (inclusive), and the repurchase price shall not exceed 65.00 yuan per share (inclusive).

Frost Sullivan recently released the "China Rehabilitation Medical device Market Research report" pointed out that with the improvement of residents' living standards and the enhancement of health care awareness, the demand for medical device products continues to grow. The size of China's rehabilitation medical device market increased from 22.5 billion yuan in 2017 to 45.03 billion yuan in 2021, with a compound annual growth rate of 19.0%. It is expected that with the intensification of aging in China, the industry will maintain an accelerated growth trend of 20-25%. The company has a wide range of products, low unit price, and for the rigid demand of rehabilitation department construction, follow-up sales are expected to follow the growth of the industry.

It is estimated that the company's EPS will be 1.19 yuan per share in 2023, 1.37 yuan per share in 24 years and 1.79 yuan per share in 25 years. It should close at 39.65 yuan yesterday, with a dynamic price-to-earnings ratio of 33.32,28.94 and 22.15 times respectively.

Risk hint: policy risk, uncertainty risk of order acquisition and confirmation, R & D schedule lower than expected risk