This report is read as follows:

The company's 2023H1 performance is in line with expectations, slowing down year-on-year growth under the influence of a high base of 2022H1, and is expected to accelerate in the second half of the year and maintain its overweight rating.

Summary:

Maintain the overweight rating. Maintain the EPS of 0.23, 0.32 and 0.41 yuan in 2023-2025, with reference to the plate valuation, give the 2023 target PE 38X, maintain the target price of 8.78 yuan, equivalent to HK $9.56, and maintain the overweight rating.

The results are in line with expectations and are expected to accelerate growth in the second half of the year. 2023H1 achieved revenue of 649 million yuan (year-on-year + 22.1%) and home net profit of 133 million yuan (year-on-year + 5.2%). The performance was in line with expectations. The gross profit margin is 61.9%, down 1.8ppm from the same period last year; the net profit rate is 20.4%, which is 3.3pp lower than the same period last year. The main reason is that the national joint mining prices in most provinces are implemented during the 2022Q2 period, and some months of 2022Q1 and 2022Q2 are still pre-harvest prices, and the 2022H1 base is relatively high. Considering that the national mining of 2022H2 joints has been basically fully implemented, and the impact of spinal discount provision, the base is low, 2023H2 is expected to accelerate growth. It is expected that the national mining of 2023H2 joint will be renewed. With reference to the recent collection rules and results, the price of each enterprise may be more concentrated when the contract is renewed, and the first winning price of the company is lower, and the renewal of the contract is expected to benefit.

Knee joint and overseas business growth is strong. According to the product line, joint products help the country to accelerate domestic substitution. 2023H1 achieved a revenue of 552 million yuan (+ 21.2% year-on-year), of which the knee joint increased significantly by 64.7% to 211 million yuan over the same period last year. It is not only expected to have the contribution of new products such as single condyle, but also reflects the further strengthening of the company's coverage and penetration in high-level hospitals. 3D printing customized products and services have successfully developed a number of hospitals, achieving revenue of 28 million yuan (year-on-year + 31.5%). The revenue of spine and trauma products reached 50 million yuan (+ 10.8% compared with the same period last year), and there was still a small increase under the collection pressure, of which the spine business relied on 3D printing products to develop nearly 200 hospitals. From a regional point of view, overseas strong growth, 2023H1 achieved revenue of 113 million yuan (+ 78.3% compared with the same period last year), mainly due to the company's active development of overseas markets, surgery volume growth.

The profit margin of overseas business is higher, and it is expected that the continuous development of overseas markets will help the company to improve its profitability.

Continue to invest in innovation and constantly strengthen the competitiveness in the field of orthopaedics. The company continues to invest in research and development, 2023H1 R & D expenditure of 66 million yuan (year-on-year + 21.9%), metal 3D printing tibial platform certified, officially introduced domestic knee joint into the era of 3D printing, narrowing the gap with international standards, spine and trauma field based on 3D printing technology also launched a number of innovative products, orthopaedic CT image processing software certified.

The continuous introduction of innovative products is expected to maintain and enhance the company's long-term competitiveness in the field of orthopaedics.

Risk hint: the amount of surgery is less than expected, and the rules of contract renewal are not as expected.