3Q23 performance is in line with our expectations
The company announced 3Q23 results: revenue of 1.96 billion yuan, year-on-year-19%; return to the mother / deduction of non-net profit of 390 million yuan, 30% of the same period last year; deduction of non-net profit of 420 million yuan after deducting equity incentive fees. The income in the first-third quarter was 6.26 billion yuan,-19% compared with the same period last year; the return to the mother / deduction non-net profit was 1.35 billion yuan, respectively, compared with the same period last year,-25% and 29% respectively. The third-quarter results are in line with our expectations based on the recent overhaul of the medical industry.
Trend of development
Coronary artery business is under pressure in the third quarter. In the first-third quarter of 2023, medical device income was 2.86 billion yuan, of which coronary revenue was + 7%, cardiovascular intervention innovation product portfolio income was + 6% year-on-year, surgical anesthesia income was + 7% year-on-year, routine diagnosis business income was growing; pharmaceutical business income was-6% year-on-year; medical services and health business income was 980 million yuan. In the third quarter alone, the coronary artery business was affected by industry consolidation, with revenue of-8% and surgery volume of-11% compared with the same period last year, and drug revenue was basically flat. The company said that in the third quarter, the digestion of the cutting balloon channel went smoothly, and the inventory adjustment of the left atrial appendage occluder was basically completed. In addition, the company says that the overseas revenue of 1-3Q23 is about 12-1.3 billion yuan. In addition, the company expects the annual revenue of OK Mirror to reach 0.6-70 million yuan in 2023.
The innovation pipeline continues to advance. By October 2023, semi-automatic external defibrillator and biodegradable patent foramen ovale (PFO) occluder has been approved for listing; the coronary pulse sonic balloon is already in the registration stage, and the company expects to be approved by the end of this year and the beginning of next year; the company expects the radiofrequency atrial septal puncture product to be approved in the near future; the company expects the Junior Needle and Water Light Needle to submit applications for listing by the end of this year or early next year. The non-invasive blood glucose monitoring product is in the registration stage and the company expects 1-2Q24 to be approved. The company participates in the clinical phase 1 of Minwei biological GLP-1/GCGR/GIP-Fc 3 target molecule, and the safety is good. The company expects 1Q24 to carry out phase 2 clinical practice. The company also expects another oral GLP-1 drug to apply for IND near 2Q24. As of October 2023, Lepu's shareholders are 27.5% of Bio, and the company said that according to the holding agreement, it is expected to gradually increase to about 55% in the future.
Looking forward to a quarterly marginal improvement. The company said that the peak of the overhaul of the medical industry is concentrated in August, and the diagnosis, treatment and academic promotion have recovered to some extent from September to October. Management expects 4Q23's operating results to be no worse than those in the third quarter. The company announced that it will use 250 million to 500 million yuan to buy back shares for equity incentives or employee stock ownership plans. In addition, the company expects to make a net profit of about 2.5 billion yuan (±10%) in 2024.
Taking into account the impact of the consolidation of the medical industry and the collection and renewal of bids, we have lowered the 24-year deduction non-net profit forecast of 2023max by 14% to 2.85 billion yuan, and the current share price corresponds to 1513 times the 24-year price-to-earnings ratio of 2023max. We maintain an outperforming industry rating, taking into account the impact of industry consolidation, lowering the target price by 17% to 22.8 yuan, corresponding to the price-to-earnings ratio of 22x19 times 24-year earnings in 2023, which is 49% upside compared to the current stock price.
Risk
The deterioration of the competition pattern, the failure of R & D, the higher-than-expected impact of policy on prices, and the lower-than-expected internationalization.