Introduction to this report:

Under the influence of collection, the company's performance continues to be under pressure. After the impact of collection is fully reflected, it is expected to grow steadily on the new base. Non-orthopedic business and overseas business are expected to bring about a second growth curve and maintain a rating increase in holdings.

Key points of investment:

Maintain the “increase in holdings” rating. Maintain the 2023-2025 EPS forecast of 0.46/0.91/1.33 yuan. The reference sector valuation gives the 2024 target PE47X, maintains the target price of 43.05 yuan, and maintains the rating for increasing holdings.

Performance continues to be under pressure due to mining. In 2023H1, the company achieved revenue of 750 million yuan (-9.5% YoY), net profit of 94 million yuan (-48.1%), minus non-net profit of 65 million yuan (-55.1%); 2023Q2 achieved revenue of 358 million yuan (-9.7%), net profit of 35 million yuan (-48.5%), net profit of 0.3 million yuan (-48.5%), net profit of 118 million yuan (-63.0%), net profit of 118 million yuan (-63.0%). Performance affected by mining continues to be under pressure.

Under the influence of harvesting, the spine declined year-on-year, and the joints benefited. In the trauma category, only some provinces and some months implemented collection prices, while 2023H1 fully implemented collection prices, revenue fell 35.2% year on year to 262 million yuan, and gross margin fell 22.65 pp to 61.86% year on year; spine 2023Q2 provinces implemented national procurement prices one after another. 2023H1 revenue fell 11.5% year on year to 210 million yuan, gross margin fell 1.75 pp year on year. It is expected that 2023H2 will continue to respond; the share before joint collection is low, benefiting from obvious collection and collection volume, 2023H1 Revenue increased 104% year over year to $58 million.

The non-orthopedic product line continues to develop, and overseas business is growing brilliantly. The company continued to increase R&D investment. 2023H1 R&D investment reached 126 million yuan (+22.8%), non-orthopedic high-value consumables product lines continued to be completed, and the growth trend was good. 2023H1, minimally invasive surgery, neurosurgery, and other products achieved revenue of 122, 0.30, and 63 million yuan respectively, with year-on-year growth rates of +28.2%, +55.1%, and +46.3%. Overseas business is growing strongly. The company's products have been exported to more than 60 countries and regions, and 2023H1 overseas revenue increased 101% year-on-year to 74 million yuan. The non-orthopedic high-value consumables business and overseas business are expected to bring the company a second growth curve.

Risk warning: The impact of collection is greater than expected, and the progress of the new business falls short of expectations.