1-3Q23 net profit is slightly lower than we expected.
The company announced 1-3Q23 results: revenue 322 million yuan, year-on-year-5.7%; return to the mother net profit of 148 million yuan, corresponding to 0.82 yuan per share, year-on-year-4.5%; return to the mother deducted non-net profit of 148 million yuan, year-on-year-3.2%, slightly lower than our expectations. We think it is mainly due to the reduction of the price of some products, the company's R & D expenses have increased and other reasons.
Trend of development
The main business declined in the third quarter compared with the same period last year. The revenue in the third quarter alone was 97.28 million yuan, down 11.4% from the same period last year, 15.7% from the previous month, and the net profit from the home was 38.49 million yuan, down 24.9% from the same period last year and 31.8% from the previous year. We believe that it is mainly due to the decline in the price of the company's products due to the collection of meningeal products, and the lower-than-expected volume of oral related products.
Gross profit margin increased compared with the same period last year, and R & D investment increased. In the third quarter, the company: 1) the gross profit margin was 90.6%, an increase of 1.0ppt over the same period last year, which we believe is mainly due to the fact that the company continues to reduce costs and increase efficiency, and the scale effect of production is further strengthened; 2) the sales expense rate is 30.3%, an increase of 3.6 ppt over the same period last year; 3) the management expense rate is 8.2%, an increase of 1.2 ppt; 4) the R & D expense rate is 11.2%, an increase of 2.0ppt over the same period last year.
The product under development is progressing smoothly. As of September 2023, the company's products under study in the clinical stage mainly include calcium silicate biological ceramic bone repair materials, breast patches and uterine cavity repair membranes, and related clinical trials are progressing normally. According to the company announcement, the calcium silicate bio-ceramic bone repair material has completed the national clinical trial in the first half of the year, and the breast patch and uterine cavity repair membrane are still in the clinical stage.
Profit forecast and valuation
Considering the decline in the collection price of some of the company's products and the further increase in R & D investment, we downgrade the 2023 net profit forecast by 10.7% to 182 million yuan and the 2024 net profit forecast by 13.5% to 215 million yuan. The current share price corresponds to 27.1 times 2023 earnings and 22.9 times 2024 earnings. We maintain an outperforming industry rating, but due to lower earnings forecasts and a downward shift in the industry valuation center, we cut our target price by 26.8% to 35.0 yuan, corresponding to 34.7 times 2023 price-to-earnings ratio and 29.2 times 2024 price-to-earnings ratio, which is 27.8% upside from the current share price.
Risk
Product R & D registration is not as expected, new product promotion is not as expected, and the implementation of volume procurement policy is higher than expected.