Xinhua Medical released its mid-2023 report. In the first half of the year, the operating income was 5.073 billion yuan (up 14.38% over the same period last year); the net profit was 459 million yuan (up 42.32% from the same period last year); and the net profit was 411 million yuan (up 16.74% from the same period last year). Quarter by quarter: 2023 Q2 realized operating income of 2.634 billion yuan (up 13.43% over the same period last year); realized net profit of 262 million yuan (up 34.65% over the same period last year); and realized net profit of 228 million yuan (up 11.64% over the same period last year).

Viewpoint: under the high base, the performance growth is steady, the gross profit margin continues to improve, and the lower growth rate of off-end profit is mainly related to the base and financial income. The proportion of the main manufacturing industry continues to increase, and the pharmaceutical equipment sector is outstanding. The internationalization is emerging, and the export of the production line is in full bloom.

Under the high base, the performance is in line with expectations, the benefits of strengthening the main industry are significant, and the pharmaceutical equipment sector is growing beautifully. The income in the first half of the year is broken down by plate: 1) Medical devices: income is 2.014 billion yuan (up 10.10% over the same period last year), accounting for 39.7%. Sense-controlled products have a significant competitive advantage and are expected to boost gross profit margins through the development of high-end products in the high-end market. 2) Pharmaceutical equipment: the launch of multiple rows of strip bag packaging machines, intelligent pre-filling production lines and other important products, driving sales revenue of 1.064 billion yuan (an increase of 41.74% over the same period last year), accounting for 20.98%. Of this total, Chengdu Yingde achieved an income of 370 million yuan (an increase of 73.62% over the same period last year), a net profit of 25.21 million yuan (an increase of 226.35% over the same period last year), and a net interest rate of 6.81% (up 3.19pct).

3) Medical services: the income is 456 million yuan (up 3.76% from the same period last year). 4) Medical trade: the income is 1.539 billion yuan (up 8.69% from the same period last year).

The gross profit margin continued to rise, and the expense rate remained stable during the period. 2023Q2 gross profit margin is 28.51% (year-on-year increase of 1.87pct), month-on-month increase of 2.29pct; sales expense rate of 8.85% (year-on-year growth of 0.35pct), management expense rate of 4.77% (year-on-year growth of 0.25pct), basically the same; R & D innovation-based, R & D expenditure rate of 3.99% (year-on-year increase of 0.96pct).

The internationalization strategy has achieved remarkable results and the potential is promising. In the first half of the year, overseas income reached 101 million yuan (155 million yuan in 2022), and new international trade contracts increased by 145% compared with the same period last year. 1) New products enter the old market: Laos market broke through the first non-PVC soft bag production line, Vietnam market broke through the first peritoneal dialysis line, Russian market experimental animal products achieved the first breakthrough; the US market successfully delivered the first non-PVC membrane basic infusion production line, etc. 2) the old products have entered new markets: Chile, Iran, Vietnam, Argentina, Bangladesh and other new markets have achieved breakthroughs in surgical instrument products.

Profit forecast and investment advice: we expect the company to achieve a net profit of 755 million yuan, 934 million yuan and 1.144 billion yuan from 2023 to 2025, an increase of 50.2%, 23.7% and 22.5% respectively over the same period last year. The current stock price corresponds to 17x, 13x and 11x respectively. Maintain a "buy" rating.

Risk hints: the risk of lifting the ban on restricted shares; the risk of policy change; the risk of export falling short of expectations.