Core viewpoints
According to the interim results announcement of 2023, 23H1 achieved revenue of 649 million yuan, year-on-year + 22.1%, gross profit of 402 million yuan, year-on-year + 18.6%, net profit of 133 million yuan, year-on-year + 5.2%, the performance is in line with our expectations. In the short term, after the implementation of the artificial joint collection policy, the import substitution trend is obvious, and the company, as the leader of the domestic joint industry, ushered in the inflection point of development. In the medium and long term, the company has a first-mover advantage in the field of 3D printing, and out-of-standard innovative artificial joint products are expected to expand quickly; at the same time, the company actively arranges digital orthopaedic platforms (navigation systems, surgical robots, etc.) and bone biomaterials. In the future, it is expected to maintain the leading position in the industry by virtue of strong research and development capabilities, channel advantages and brand advantages.
Event
The company issues the 2023 interim results announcement.
On August 22, 2023, the company issued an interim results announcement for 2023. 2023H1 achieved revenue of 649 million yuan, + 22.1% year-on-year, and net profit of 133 million yuan, + 5.2% year-on-year. The EPS is 0.12 yuan.
Brief comment
The performance is in line with expectations, and collection further accelerates import substitution.
According to the announcement, 23H1 achieved revenue of 649 million yuan, + 22.1% year-on-year, gross profit of 402 million yuan, + 18.6% year-on-year, and net profit of 133 million yuan, + 5.2% year-on-year. The performance was in line with our expectations, and the profit growth rate was lower than the income growth level. The main reason is that the collection policy has not been fully implemented in the same period last year, the product sales unit price and gross profit level are high, and the company management expense rate has increased in the first half of this year. In the first half of this year, the number of orthopedic operations nationwide increased rapidly in the second half of the first quarter, and then stabilized at a relatively rapid growth level. The collection policy further accelerates the trend of import substitution, and domestic brands continue to expand their market share.
The company continues to launch innovative products, further strengthen the coverage of provincial-level third-class hospitals, and enhance the market share of the original products in these hospitals.
From the perspective of split products, the income of 23H1's hip and knee products is 553 million yuan, + 21.2% compared with the same period last year, including 341 million yuan (+ 4.2%) from hip products and 211 million yuan (+ 64.7% from the same period last year). The recovery momentum of hip and knee joint implants is obvious, and the promotion of new products such as single condyle has further promoted the growth of hip and knee joint income. The income of 23H1 spine and trauma products is 50 million yuan, which is 28 million yuan compared with the same period last year. The income of other (surgical instruments, medical lavage devices and third-party orthopedic products) is 18 million yuan, which is + 107.5% compared with the same period last year.
With the active development of overseas markets and the improvement of domestic market share, the annual performance is expected to achieve rapid growth of 23H1 domestic income of 535 million yuan, + 14.5% compared with the same period last year; overseas income of 113 million yuan, + 78.3% of the same period last year, mainly due to the company's active development of overseas markets in the first half of the year, the increase in the number of operations, and the layout of the company's overseas business for many years. At present, the products have covered more than 30 countries, and the proportion of overseas business has increased steadily.
Looking forward to the second half of the year, the high growth trend of surgery volume in the joint industry is expected to continue. With the help of collection and implementation, the company is expected to steadily increase its domestic market share and continue to open up overseas markets, which is expected to drive the company's business to maintain rapid growth; and due to the low profit base in the second half of last year, it is expected that the growth rate of net profit in the second half of this year will be more substantial than the same period last year.
China's leading orthopaedic joint company, with obvious first-mover advantages in the field of 3D printing, has four platforms: Beijing Aikang (joint, 3D customization), Changzhou Tianyan (joint, tool), British JRI (joint, international market), Beijing Liebel (spine, trauma), with a perfect orthopaedic product line and forward-looking R & D layout. In the national artificial joint collection, the company won the bid for hip and knee joint replacement products for the first time. Since the implementation of the artificial joint collection policy in 2022, the trend of import substitution in the industry is obvious, and the trend of the company's products is obvious in terms of price for volume. The products have entered a number of core third-class hospitals, increasing the share of the middle and high-end market. The collection of spinal consumables at the national level was carried out in September 2022, and the spine products of the two brands of Liebel and Aikang won the bid. In March this year, the country began to implement the winning results of spinal collection. Through the leading 3D printing technology and rich product line, the company provides doctors with more choices, enters more high-level hospitals and increases the market share of spinal products.
Since 2009, the company has laid out 3D printing implant products and established an iCOS innovative customized platform, which can provide services and products including preoperative planning, bone model printing, customized osteotomy guide plate, 3D printing customized implant products, covering joints, spine, trauma, bone tumor and other parts. 2023H1, the company's customized products and services achieved revenue of 28 million yuan, an increase of 31.5% over the same period last year, and is expected to continue to grow rapidly in the future. In addition, after the collection of hip and knee joint for the first time, the company has a comprehensive product layout in the off-standard market such as renovation and early intervention, and the related products are expected to usher in a stage of rapid growth.
The financial indicators are basically normal and the expenses are well controlled.
2023H1's gross profit margin was 61.9%, down 1.8% from the same period last year. Since April 2022, the national joint implant collection policy has been implemented. The sales price of hip and knee implants in the collection range has dropped, and the decline in price has led to a decline in gross profit margin. The sales expense rate was 18.1%, down 0.5% from the same period last year. The company actively carried out market development and new product training, and the related market expenses and sales staff labor costs increased; the management expense rate was 11.6%, an increase of 1.4% over the same period last year, mainly due to the increase in the labor costs of managers and the provision for credit losses based on the age and balance of accounts receivable. The R & D expenditure rate is 10.2%, which is basically the same as the same period last year. The company continues to actively invest in R & D, strengthen the construction of R & D team, and actively promote the development of R & D projects and new products. Net cash from operating activities was 14 million yuan, down 93.3% from the same period last year, mainly due to cash payments for the purchase of raw materials such as ceramics and polyethylene in the first half of the year, as well as an increase in accounts receivable compared with the end of 2022. As of June 30, 2023, the company's net current assets was about 1.49 billion yuan, which was about 140 million yuan less than at the end of 2022, mainly due to the company's investment in the construction of new factories.
Profit Forecast and Investment rating
In the short term, the demand for elective surgery this year is expected to continue to recover, and the growth rate of joint surgery is expected to be higher than the average of the past three years. As the leader of the domestic joint industry, the company has won the bid in the collection and is expected to usher in the inflection point of development. In the medium and long term, the penetration of joint replacement surgery in China is still relatively low, and the industry still has a lot of room for growth. the company has a first-mover advantage in the field of 3D printing, and the out-of-standard innovative artificial joint products are expected to expand quickly. At the same time, the company actively layout navigation systems, surgical robots and other digital orthopaedic platforms and bone biomaterials, the future is expected to rely on strong research and development capabilities, channel advantages, brand advantages, to maintain the leading position of the industry.
It is estimated that the company's income from 2023 to 2025 will be 13.80,18.01 and 2.339 billion yuan respectively, with corresponding growth rates of 31.21%, 30.49% and 29.87% respectively, and net profit of 2.66,3.48% and 452 million yuan respectively, with corresponding growth rates of 30.15%, 30.55% and 29.96% respectively. Maintain the "buy" rating.
Risk analysis:
1) risk of industry policy change: at present, artificial joints have carried out a round of volume procurement at the national level, and the implementation cycle is two years. The contract may be renewed in the second half of this year, and the change of renewal policy may affect the profit margin level of manufacturers' products. Due to the strengthening of medical industry compliance and other industry policy factors, bidding demand in some areas has been delayed and new product promotion activities have been hindered, there is a risk that our performance forecast may not be achieved. 2) the market competition aggravates the risk: there are many domestic artificial joint manufacturers, and some small and medium-sized manufacturers do not rule out that some small and medium-sized manufacturers gain market share with the help of collection, which leads to further intensification of market competition; because the winning price of the company is relatively low, if the company can not grasp the good market competition strategy, it should pay attention to the risk of whether the volume reaches the expectation. 3) R & D progress is not as expected risk: the company is currently developing digital orthopaedic platforms and bone biomaterials, such as navigation systems, surgical robots, etc., and there is uncertainty in the research and development of new products, if the research and development progress is not as expected, it may affect the future growth ceiling of the company to some extent.