2023 revenue slightly exceeded our expectations
The company announced 2023 results: revenue of 1,476 billion yuan, up 16.2% year on year; net profit to mother of 53.48 million yuan, corresponding to profit of 0.32 yuan per share, -75.0% year on year; adjusted net profit (restated) of 179 million yuan, -16.0% year on year. Revenue and adjusted net profit (restated) slightly exceeded our expectations, mainly because the company's internationalization progress in 2023 slightly exceeded our expectations.
Development trends
The number of cases reached in the domestic market continued to grow well over the same period last year. In 2023, the company's domestic market revenue was 1,331 billion yuan, up 5.5% year on year, of which revenue from invisible correction solutions was 1,282 billion yuan, up 6.0% year on year; the number of domestic cases of the company was about 212,000, up 15.3% year on year. In addition, the adjusted segment profit of the company's domestic market was 256 million yuan, up 29.9% year on year, and the net profit margin was about 19.3% (up 3.6 percentage points year on year). According to the company announcement, the company continues to rank first in domestic market share according to case figures. We expect that in the future, the company will continue to use its advantages to consolidate its position in the 1-2 tier market, actively strengthen sales and medical services, and expand penetration in low-tier cities.
The number of international business cases surpassed market expectations. In 2023, the company achieved an international caseload of 33,000, revenue of 145 million yuan, and a loss of about 211 million yuan in the adjusted segment of the foreign market. According to the company announcement, in 2023, the company actively participated in more than 20 top academic outlook sessions in European countries. In the Australian and New Zealand markets, the company formed a local business team and switched from distribution to direct sales. In the US market, the company actively showcased digital orthodontic products. In the Brazilian market, on January 16, 2023, the company officially completed the acquisition of Aditek and actively assisted Aditek in building a digital factory. It has now been successfully completed. In addition, Aditek has established more than 50 doctors' study clubs to provide medical technical training and clinical support for more orthodontists. We believe that the company's products are expected to gradually gain recognition from overseas market opinion leaders and dentists.
Gross profit margin increased year over year. In 2023, the gross margin of invisible correction solutions was 65.7%, an increase of 2.0 percentage points over the previous year, mainly due to the reduction in unit manufacturing costs for R&D optimization products. The comprehensive gross margin was 62.4%, an increase of 0.5 percentage points over the previous year, mainly due to a further increase in the share of high-margin products.
The sales expense ratio was 33.4%, an increase of 9.9 percentage points over the previous year, mainly due to international business development.
Profit forecasting and valuation
Considering that the company's overseas business expansion exceeded expectations, we raised our 2024 revenue forecast by 6.8% to 1.75 billion yuan, but considering that the company's overseas business is in the early stages of the expansion period, high investment costs and potential exchange risks, we maintained an adjusted net profit of 209 million yuan for 2024. For the first time, we introduced adjusted net profit of 220 million yuan in 2025. Considering that the current global penetration rate of invisible orthodontics still has high room for development and the company's leading position, we are still maintaining the “outperforming industry” rating. Considering that the company's overseas expansion exceeds expectations, we raised our target price based on DCF by 24.1% to HK$85.0, which has 13.0% upside compared to the current stock price.
risks
International business falls short of expectations, risk of exchange losses, and weak domestic consumption.