2023H1 achieved revenue of 335 million yuan (YoY+51.55%) and net profit of 108 million yuan (YoY+169.00%). The company continued its recovery in the first quarter and achieved a beautiful performance. The annual performance in 2023 is worth looking forward to. In addition, in July 2023, the company issued a new equity incentive plan, which fully demonstrated the company's confidence. In the short term, the company's mid-2023 report revealed a contract liability of 114 million yuan, and there is still room to release market demand that had been suppressed by the epidemic. In the medium term, the company continues to increase investment in research and development, a number of achievements will usher in the harvest. In the long run, in line with the trend of the aging population, the policy clearly supports the development of the rehabilitation industry, and the industry concentration is expected to be further enhanced, which is good for the industry leaders. Taking into account the continued realization of the company's recovery momentum in the second quarter, we are optimistic about the company's full-year results in 2023, adjusting the company's annual EPS forecast for 2023-24-25 to 1.43max 1.75x2.16 yuan (2023-24-25, the original forecast for the year is 1.32xpx PE 2.24 yuan), the current price corresponding to the valuation of PE in 28-23-18, the company will be given 36 times PE in 2023, corresponding to the target price of 51 yuan, maintaining the "buy" rating.

The strong recovery continued in the second quarter, with revenue and profit reaching a record high in the first half of the year. In the first half of 2023, the company achieved revenue of 335 million yuan (YoY+51.55%), net profit of 108 million yuan (YoY+169.00%) and non-return net profit of 95 million yuan (YoY+268.41%). In a single quarter, 2023Q2 achieved revenue and net profit of 192 million yuan and 70 million yuan respectively, which was + 1.09% and 128.65% respectively compared with the same period last year, maintaining a strong recovery momentum since the first quarter. 2023H1's gross profit margin is 67.61%, which is basically the same as that of the same period last year. On the cost side, the sales expense rate was 23.35% (- 8.13pcts), the R & D expense rate was 14.18% (- 5.53pcts), and the management expense rate was 4.99% (- 3.57pcts), which continued to improve compared with the cost side during the epidemic.

Technology R & D builds core competitiveness, and equity incentives demonstrate the company's confidence. 2023H1, the company continues to increase investment in research and development, launched a number of innovative products with independent intellectual property rights, such as piezoelectric shock wave therapy instrument, three-dimensional core muscle evaluation and training system, transcranial magnetic AI navigation and positioning system, the company's product line has been continuously enriched and upgraded. At the same time, the company also actively cooperates with universities, scientific research institutes and hospitals to provide a continuous driving force for the technological innovation of enterprises. In July 2023, the company issued the 2023 restricted stock incentive plan, which intends to grant 1.8 million restricted shares to the incentive object, 1.44 million shares for the first time, and the price is 32 yuan per share for the first time. The equity incentive plan is expected to give full play to the team's subjective initiative and help the company develop rapidly. The specific performance assessment objectives are as follows:

In the first vesting period, the growth rate of operating income in 2023 shall be no less than 50% on the basis of operating income in 2022, or on the basis of deducting non-net profit in 2022, the growth rate of non-net profit in 2023 shall be no less than 70%.

In the second attribution period, the growth rate of operating income in 2024 shall be no less than 80% on the basis of operating income in 2022, or the growth rate of non-net profit in 2024 shall be no less than 120% on the basis of deducting non-net profit in 2022.

A number of policies support the development of the industry, and payment by disease highlights the value of the rehabilitation industry. In April 2023, the National Health Commission issued the Circular of the General Office of the National Health Commission on further promoting the relevant work of Rehabilitation surgery, which mentioned the strengthening of early rehabilitation intervention. The specific calculation method of the early rehabilitation intervention rate of accelerated rehabilitation surgery was defined in the Evaluation Index of accelerated Rehabilitation surgery, which provided a specific grasp for the implementation of the diagnosis and treatment model of accelerated rehabilitation surgery. In May 2023, the State Administration of traditional Chinese Medicine and the National Health Commission jointly issued the Circular on carrying out actions to comprehensively improve Medical quality (2023-2025). In the provincial action effect monitoring index system from 2023 to 2025, the "early rehabilitation intervention rate" will be increased.

To be included in the assessment scope of the quality of medical behavior. Early intervention is an important principle of rehabilitation, and the improvement of the ability of early rehabilitation services in general hospitals is of great significance to meet the rehabilitation needs of the broad masses of people. Under the disease-based payment model, rehabilitation tends to early intervention, from a single rehabilitation department to multi-departments. Early rehabilitation intervention can significantly improve the quality of treatment, improve patient satisfaction, and achieve win-win between doctors and patients from the perspective of health economics.

The industry is booming for a long time, the degree of concentration needs to be improved, and the leading competitive advantage in the industry is obvious. China's rehabilitation department is still in the stage of development, the demand of grass-roots medical institutions is strong, the future market space is considerable, superimposed with factors such as the aging of the population, the field of rehabilitation medical care is promising for a long time. The application of rehabilitation equipment is wide, and the demand of each department is different, which leads to the dispersion of competition pattern. According to the forecast of Frost & Sullivan (quoted from the Weiss Medical prospectus), the terminal market size of rehabilitation equipment in 2020 is about 40 billion yuan, corresponding to the ex-factory price of about 150-20 billion yuan. As the leader of domestic rehabilitation equipment, we estimate that the domestic market share in 2020 is only about 3% (the company's revenue is divided by the market size), and there is huge room for improvement in industry concentration. With strong R & D efforts, sufficient intellectual property reserves, continuous platform development of products and synergy produced by a perfect product matrix, the company is one of the few enterprises in the industry that can provide integrated clinical rehabilitation solutions. At the same time, the company's sales channel construction is perfect, R & D + platform + marketing tripartite factors resonance, the company's growth rate is expected to exceed the industry average.

Risk factors: macroeconomic growth is under pressure; new business development is not as expected; raw material costs are increased; R & D progress is not as expected; competition is intensified.

Earnings forecast, valuation and rating: in the short term, the 2023 China report revealed that the company's contract liabilities were 114 million yuan, and there was still room to release demand that had been suppressed by the epidemic. In the medium term, the company continues to increase investment in research and development, a number of achievements will usher in the harvest. In the long run, in line with the trend of the aging population, the policy clearly supports the development of the rehabilitation industry, and the industry concentration is expected to be further enhanced, which is good for the industry leaders. Taking into account the continued realization of the company's recovery momentum in the second quarter, we are optimistic about the company's full-year results in 2023, adjusting the company's annual EPS forecast for 2023-24-25 to RMB 1.43max 1.75exp. 2.16 (the original forecast for 2023-24-25 was RMB 1.32pm), and the current price corresponds to the valuation of PE as times as much as 28-23-18. Taking into account the current stable profit of Xiangyu Medical, using PE relative valuation, with reference to Mindray Medical, Kai Medical and Huitai Medical, which belong to the medical device sector and recovered after the epidemic, the three reference companies unanimously forecast an average PE of 36 times PE in 2023, giving the company 36 times PE in 2023, corresponding to the target price of 51 yuan, and maintaining a "buy" rating.