Main points of investment

Performance: revenue accelerated compared with the previous month, optimistic about the potential of medical expansion on October 25, 2023, the company disclosed the third quarterly report of 2023, specifically:

2023Q1-3: realized operating income of 1.657 billion yuan, an increase of 10.50% over the same period last year; net profit of 563 million yuan, up 1.12% over the same period last year; and net profit of 550 million yuan, an increase of 3.08% over the same period last year.

2023Q3: the company achieved operating income of 690 million yuan, an increase of 15.87% over the same period last year; net profit of 217 million yuan, down 6.79% from the same period last year; and 210 million yuan of non-return net profit, down 10.28% from the same period last year.

Growth analysis: cornerstone business is stable, optimistic about medical expansion potential ① color sorter: as of 2023H1, the company's color sorter revenue of 564 million, YOY 5.22%, accounting for 58.26% of revenue, is still the company's largest cornerstone business. By the end of 2022, the domestic market for color selection of agricultural products has entered a stage of stable development, but overseas markets, especially in developing countries and regions, are still in a period of rapid development. Since 2023, the company has released a number of new color sorters, including the special color sorter for small leaf tea, the industry's first UV color sorter, UHD deep learning color sorter, integrated plastic bottle sorting equipment, etc., through engineering design, based on deep learning technology and built by an intelligent factory, the new products have achieved further improvement in color sorting performance and reliability. As the pioneer of the domestic color selection industry, the company has established a wide coverage, differentiation and cost-effective product system through continuous innovation. We believe that the competitiveness of the company's color sorting machine products at home and abroad, especially in overseas developing countries and regions, is expected to be continuously improved under the promotion of new technologies and new products, and the business continues to grow steadily with high certainty.

② medical equipment (oral CBCT, etc.): as of 2023H1, the company's medical equipment revenue is 303 million, YOY1.28%, revenue accounts for 31.32%. Since 2022, the company has achieved the steady progress of target market access and distribution network in overseas expansion, and achieved the export of oral CBCT in many countries and regions. We believe that with the gradual maturity of the distribution network, the company's overseas market is expected to gradually usher in a faster volume in 2024-2025. In the first half of 2023, the company launched a new high-end seated oral CBCT, which can more effectively meet the film needs of different diagnosis and treatment groups. In addition, the company also officially released the "Meiya teeth" oral health digital cloud platform, which is based on truly solving the pain points of clinic operation and meeting the intelligent needs of diagnosis and treatment, and is expected to further promote the digital development of the company's oral industry. We believe that the company's oral CBCT has formed a product echelon with multi-imaging vision, which can effectively meet the needs of all kinds of oral diagnosis and treatment customers. Driven by dental implant collection, CBCT installation demand is expected to increase rapidly, promoting the company's oral CBCT business is expected to return to a high growth trend. In addition, in January 2023, the spinal surgery navigation equipment developed by the company obtained the medical registration certificate, which is expected to gradually contribute to incremental elasticity.

③ X-ray industrial inspection machine: the company entered this field earlier, the technology is mature, the product is complete. In 2009, after launching the first X-ray foreign body detection machine in China, the company gradually focused the market on food, tires and other fields. Considering that industrial X-ray inspection is widely used in industrial production and is an important part of product quality supervision and control, the application scene is gradually opening. We believe that this part of the business of the company is still expected to maintain rapid growth in the future.

Profitability analysis: with the improvement of business quality, gross profit margin and net profit margin are expected to maintain stable gross profit margin and net profit rate: 2023Q1-3 gross profit margin is 52.24%, year-on-year reduction of 0.32pct, net sales margin of 33.98%, year-on-year decrease of 3.15pct, we think it is mainly related to the increase in financial expense rate (decrease in exchange earnings). Overall, considering that the company is still in an absolute leading position in the field of color sorter and oral CBCT, gross profit margin is expected to remain relatively stable in the future as high-end new products continue to be launched and released.

Period expense rate: 2023Q1-3 sales expense rate is 9.64pct, year-on-year reduction of 0.59pct, management expense rate 4.23%, year-on-year reduction of 0.49pct, financial expense rate-3.12%, year-on-year increase of 4.02pct, R & D expense rate 5.17%, decrease 0.41pct. Looking forward to 2023, we expect the company's operating expenses rate to be basically stable.

Operation quality: 2023Q1-3, the net operating cash flow of the company is 409 million yuan (136 million yuan for 2022Q1-3), an increase of 202.02% over the same period last year, accounting for 71.40% of the net income from operating activities, and a significant improvement over the same period last year (2022Q1-3 is 24.08%). According to the company's third quarterly report in 2023, it is mainly due to the increase in cash received by the company in the current period and the decrease in purchase payments.

Profit forecast and valuation:

We expect the company's EPS to be 0.91,1.01,1.21 yuan respectively from 2023 to 2025, and the closing price on October 25, 2023 corresponds to 19.8 times PE in 2023. Considering the rapid release of CBCT demand brought about by the gradual landing of dental implant collection in 2023, the company's oral CBCT business is expected to return to high growth and drive the company's overall revenue into a gradual acceleration period to maintain a "buy" rating.

Risk hint

Market competition brings the risk of gross profit margin decline, the risk of overseas expansion not as expected, the risk of new product research and development and promotion not as expected, the risk of policy change, and so on.