[Incident_s: U Gongm] Revenue for the second quarter was 2.63 billion yuan (+13.4%), and the net profit margin for the second quarter was 260 million yuan (+34.7%).

Focusing on the two core businesses, the gross margin level continues to rise. The company focuses on two major businesses, including medical devices and pharmaceutical equipment. In the 2023 semi-annual report, the revenue of Chinese medical device manufacturing products and pharmaceutical equipment products was 20.01 billion yuan (+5.8%) and 1.06 billion yuan (+43.2%), respectively, accounting for 61% (+1pp) of the revenue for the half of 2023, accounting for 61% (+1 pp) of the revenue for the first half of 2023, and the share of the main business increased further. The company's gross profit for the first half of 2023 was 1.39 billion yuan (+19.8%), with a gross profit margin of 27.4% (+1pp), further increasing product gross margin. 1) Pharmaceutical equipment revenue in the first half of the year was 2.01 billion yuan (+10.1%). Among them, the sensory control business expanded the intelligent endoscopy center business, signed cleaning and sterilization sales contracts with key hospitals related to “Da Vinci” products, and raised the overall gross margin level for high-end products. 2) Pharmaceutical equipment: revenue of 1.06 billion yuan (+41.7%), of which the subsidiary Chengdu Yingde achieved revenue of 370 million yuan (+76.2%), net profit of 25.215 million yuan (+226.3%), and a significant increase in net interest rate; Shanghai Yuanyue achieved revenue of 559.05 million yuan (+12.4%) and net profit of 7.852 million yuan (+37.6%); 4) Services: revenue of 600 million yuan (+3.8%), of which Jinan Xinhua achieved revenue of 170 million yuan (+6.3%), net profit of -11,000 yuan (+100%), a decrease of The main reason for the slowdown in losses is the gradual withdrawal from disposal of non-performing assets in medical services, focusing on profitable assets such as dialysis.

R&D investment continues to increase, and major new products are about to be launched. Sales expenses for the first half of the year were 400 million yuan (+17.8%), and the sales expenses rate was 8.7% (+0.08 pp). R&D expenses were 180 million yuan (+43.5%), and R&D cost rate was 3.5% (+0.07 pp). In January-June, 85 new patents were applied for and 90 authorized patents. The “Radiation Therapy X-ray Image Guidance System” obtained three types of medical device registration certificates ahead of schedule; key R&D projects for the 128-row slide rail CT and fully automatic strip bag production line progressed smoothly. In addition, a new rehabilitation and medical track will be set up. Management expenses were 240 million yuan (+19.7%), and the management expenses rate was 4.7% (+0.21 pp), mainly due to an increase in the remuneration and expenses of managers and employees. Financial expenses were 8.694 million yuan (-59.6%), and the financial expense ratio was 0.2% (-0.31pp), mainly due to the decline in the company's interest-bearing debt in the current period.

International market expansion is beginning to bear fruit. The company's foreign revenue for the first half of the year was 100 million yuan, an increase of 21% over the previous year. The amount of newly signed contracts increased by 98% compared to the same period last year. In July 2023, a strategic cooperation agreement was reached with Belarusian Minister of Health Pinevich in Beijing on future cooperation in the fields of infection control, radiological diagnosis and treatment, surgical instruments, and pharmaceutical equipment. In August 2023, Xinhua Medical and Huiying Medical signed a strategic cooperation agreement to develop long-term strategic cooperation around the LINAC (LINAC) global business. New markets for surgical instruments have been developed, such as Chile, Iran, Vietnam, and Argentina.

Profit forecasts and investment recommendations. It is estimated that the company's net profit from 2023-2025 will be 800 million yuan, 1 billion yuan, and 1.18 billion yuan, and the corresponding PE is 14, 11, and 9 times, respectively. It is recommended to keep an eye on it.

Risk warning: Risks such as cost control falling short of expectations, core product sales falling short of expectations, and overseas business expansion falling short of expectations.