On October 24, 2023, the company disclosed that the operating income in the first three quarters of 2023 was 7.317 billion yuan, up 10.0% from the same period last year; the net profit was 579 million yuan, up 37.8% from the same period last year; and the non-net profit was 555 million yuan, up 27.9% from the same period last year. Of this total, Q3 income was 2.244 billion yuan, up 1.29% over the same period last year; net profit from home was 120 million yuan, up 22.9% from the same period last year; and 144 million yuan was deducted from non-net profit, an increase of 76.0% over the same period last year. 2023Q3's gross profit margin and net profit margin have been greatly improved compared with the same period last year, the profitability has risen steadily, and the high profit growth for the whole year is expected.

Growth: focus on steady growth in main business income, steady growth in overseas construction of a new growth curve, and increase in the proportion of main business. In the first three quarters of 2023, the company's revenue increased by 10.0% compared with the same period last year, and its net profit increased by 37.8% compared with the same period last year. The company focused on the main business (medical devices and pharmaceutical equipment). Under the optimization of the income structure, the revenue grew steadily. Since the company proposed to focus on the main industry and change from scale growth to benefit growth in 2018-2022, the company's two core sectors, medical devices (revenue share increased from 22% to 41%), pharmaceutical equipment (revenue share increased from 8% to 16%), 2023H1 company medical devices and pharmaceutical equipment revenue accounted for 60.68%, the proportion of income increased steadily. We believe that the company's medical equipment & pharmaceutical equipment sector has a wider space and higher gross profit margin. With the steady increase in the proportion of main business, the company's revenue and profits are expected to achieve higher growth.

Overseas expansion has achieved initial results, building a new growth curve. From 2016 to 2022, the share of overseas revenue of the company increased from 0.72% to 1.67%. The overseas newly signed contracts of the company increased by 98% compared with the same period last year, and some products and some markets achieved zero breakthroughs: the Vietnam office to be established in 2022 realized the first non-PVC soft bag production line in Laos and the first peritoneal dialysis line in Vietnam market in the first half of the year; the Egyptian office to be established in 2022 signed new orders in markets such as Morocco. Experimental animal products achieved export breakthrough in the Russian market for the first time and signed a FAT contract; Thailand market achieved the first breakthrough in STable-H8500 electro-hydraulic surgical bed and other high-end product series; the first non-PVC membrane-based infusion production line was successfully delivered in the American market; and surgical instruments developed Chile, Iran, Vietnam, Argentina, Bangladesh and other new markets, increasing the export volume of products. We believe that with the gradual expansion of the company's overseas channels, overseas is expected to form a new growth curve and open up long-term growth space.

Profitability: gross profit margin & net profit margin is expected to continue to rise

2023Q3's gross profit margin and net profit margin are still significantly higher than the same period last year, which is expected to bring long-term performance release.

2023Q3, the company's gross profit margin was 28.31%, an increase of 2.86pct over the same period last year, mainly due to the optimization of the company's revenue structure (higher gross profit margin for medical devices and pharmaceutical equipment). Benefiting from the increase in gross profit margin, 2023Q3's net profit margin was 5.71%, an increase in 1.23pct compared with the same period last year. We believe that, driven by the reform of the company's state-owned enterprises and equity incentives, continue to focus on the main business and improve efficiency, the company's net interest rate is expected to continue to rise in 2023-2025.

Profit forecast and investment suggestion

Based on the above analysis, we estimate that the company's operating income from 2023 to 2025 will be 120.32 billion yuan, an increase of 13.4%, 14.4% and 12.1% respectively over the same period last year. From 2023 to 2025, the company's net profit of returning to the parent was 7.43 million yuan, 899 million yuan, respectively, an increase of 47.73%, 21.07% and 17.54% respectively over the same period last year, and the corresponding EPS was 1.59 pm 1.93 PE (12 times PE in 2024), maintaining the "overweight" rating.

Risk hint

The risk of policy change; the risk that the commercialization of new products or market acceptance is less than expected; the risk of increased competition in the industry; the risk that the management of M & A targets is not as expected.