A leader in the domestic injecting and puncture device industry, it has reached an inflection point where it has adopted shares to focus on the medical and veterinary injection and puncture equipment field. It mainly provides products to many large, world-renowned companies through ODM/OEM and other models. The customer resources are high and the stickiness is very high. Affected by major downstream customer inventory removal and a phased slowdown on the demand side, the company's 2H22-1H23 short-term performance is expected to reach a clear inflection point, based on: 1) major overseas customers are nearing the end of 3Q23, and old products have bottomed out; 2) the high-end new product portfolio has gained strength and entered the mass harvest period; 3) the supply of new production capacity is in place, and there were no bottlenecks on the supply side 25 years ago. We expect the company's 23-25 EPS to be 1.06/1.64/2.13 yuan. The company's core technology industry is leading, and there are many growth drivers. It was given 28x PE in 24 (comparable to the company Wind's unanimous expectation of 23x), corresponding to a target price of 45.82 yuan, which gave it a “buy” rating for the first time.

The risk of downstream customers leaving inventory has basically been released. In order to avoid risks such as short-term breakdowns in the Chinese supplier supply chain, the company's overseas core customers significantly increased order procurement at 2H21-1H22 (but terminal demand did not increase significantly), causing internal inventory levels to remain high in the short term. 2H22 The supply pace of the industrial chain stabilized after the negative impact of domestic and external objective factors gradually cleared up. Overseas customers began to reduce procurement and absorb existing inventory due to cost control and other considerations, causing the company's 2H22-1H23 performance to be under pressure, and quarterly revenue continued to decline year-on-year. However, as of 3Q23, inventory removal from major overseas customers had basically ended, and the company's 3Q23 revenue had returned to steady growth (yoy +12.8%). Considering the continued recovery of routine diagnosis and treatment activities around the world combined with the obvious immediate demand for products supplied by the company, we are optimistic that traditional business revenue will continue to improve quarter by quarter and return to steady growth in 24 years.

High-end new products have entered an intensive harvest period, contributing significantly

The company has excellent ability to update and iterate its high-end products. New products such as safety spring blood collection needles, pump syringes, and safe insulin pens have all obtained the US FDA 510K registration certificate in recent years, and several products, such as pump syringes, are the first products in China to obtain an FDA 510K registration certificate. Due to the short time it took for the product to be approved and production capacity was tight before, new high-end products contributed less in '23 (we expect their total revenue in '23 to be less than 10 million yuan). Looking ahead to 24 years, with the gradual deepening of cooperation after production capacity is in place and customer acceptance of new products increases, both supply and demand sides will no longer be limited. We expect that the company's high-end new products will contribute a significant revenue increase in total over 24 years, and are expected to drive the company's overall gross margin to continue to rise.

New production capacity is about to be released, and the supply side is no longer limited

By the end of '22, the company's production workshop had a total of over 68,000 square meters. Previously, the supply of production capacity was tight.

In recent years, the company has continued to accelerate the construction of the second phase of the new plant project located on Chenglu Road, Huashi Town. The plant has a planned area of 90,000 square meters and a planned annual production capacity of 920 million medical injection/puncture devices. As of 2H23, the main construction of the Huashi Phase II project has been completed and is in the renovation stage. The company expects 1H24 to be put into operation one after another, and after completion, production capacity will prioritize high-end new products to ensure that there were no bottlenecks in production capacity 25 years ago.

Risk warning: Sales of core products fall short of expectations, increased market competition, and risk of exchange rate fluctuations.