Incidents:

The company released its 2023 three-quarter report. The first three quarters of 2023 achieved operating income of 146 million yuan, a year-on-year increase of 4.69%, net profit of 25.42 million yuan, a year-on-year decrease of 15.35%, and a net profit of 22.12 million, a year-on-year increase of 0.95% over the previous year. The third quarter achieved quarterly revenue of 6.06 million, a year-on-year increase of 35.81%, net profit of 13.53 million yuan, a year-on-year increase of 53.63%, and net profit of 12.7 million after deducting non-return net profit of 12.7 million, an increase of 77.32% year-on-year.

Reviews:

Meningeal products contributed the main revenue, and the craniofacial repair series achieved rapid growth. The company's gross profit margin for the third quarter was 82.72%, down 2.25 percentage points from the previous year; the period's expense ratio improved year over year, and operating cash flow increased 172.93% year over year. In the first three quarters of 2023, the increase in the company's revenue was mainly due to the company's active participation in centralized procurement by building a multi-product collaboration strategy and providing overall solutions, and continuing to actively explore the global market. The company's artificial hard brain (ridge) membrane patch contributed the most to the company's total revenue and is still the company's main source of revenue. Sales of the company's craniofacial repair products are growing rapidly. Medical adhesive products for dura mater and hemostatic products that can absorb regenerated cellulose oxide also contributed to sales revenue.

Actively participate in centralized volume procurement and continue to explore the global market

According to the “Notice on Publicizing the Proposed Selection Results of the Inter-Provincial Alliance for General Interventional and Neurosurgical Medical Consumables” issued by the Henan Provincial Health Insurance Bureau on September 15, 2023, the company's skull repair fixation products have been shortlisted for selection. Relying on its comprehensive layout in the field of skull repair, the company is expected to expand product sales scale and increase product market share in the future. As of July 2023, the company has applied for more than 300 patents worldwide, and its products have entered more than 80 countries and regions, including Europe, America, the Middle East, and Asia, serving nearly 500,000 patients. In the third quarter of 2023, the company's overseas revenue increased by more than 30% over the previous year.

The implementation of equity incentives shows confidence in development

In August 2023, the company implemented a restricted stock incentive plan, which is expected to motivate core employees.

The incentive plan granted incentives to a total of 49 people for the first time. 1,768 million restricted shares were granted on August 24, accounting for about 2.68% of the company's total share capital on the day the draft incentive plan was announced, and 94.65% of the total number of restricted shares to be granted under this incentive plan. The operating income trigger values for 2023-2025 corresponding to this equity incentive were $219/2.66/336 million, respectively, and the target values were $225/2.83/371 million, respectively.

This equity incentive is expected to fully mobilize the work enthusiasm of the company's middle and senior management and key employees, help stabilize the core team and business backbone, and further enhance the company's cohesion.

Profit forecast: We expect the company's operating income from 2023-2025 to be 229/288/377 million yuan, respectively, and net profit of 0.43/0.68/105 million yuan respectively, maintaining the “buy” rating.

Risk warning: risk of new product development and technology iteration, risk of policy change, risk of terminal hospital market expansion, risk of increased market competition