Key points of investment
Performance: The cornerstone business is outstanding. Overall, it is basically in line with our previous expectations that the company will disclose its 2023 annual report on March 29, 2024. Specifically:
2023: Achieved operating income of 2.43 billion yuan, YOY 14.6%; net profit to mother of 740 million yuan, YOY 2.0%; net profit after deduction of 690 million yuan, YOY -1.1%.
2023Q4: Achieved operating income of 770 million yuan, YOY 24.4%; net profit to mother of 180 million yuan, YOY 4.9%; net profit after deduction of 140 million yuan, YOY -14.5%.
Growth analysis: The cornerstone business performed well, driven by new products, and expected medical expansion potential ① Color sorter: 2023H2, the company's color sorter revenue was 9.1 billion yuan, YOY 30.3% (2023H1, revenue 560 million, YOY 5.2%). Under the continuous impetus of new products, revenue growth accelerated markedly. As of 2023, the company's color sorter accounted for 60.9% of revenue, which is still the company's largest cornerstone business. Since 2023, the company has intensively released a variety of new color sorters, such as the industry-first UV color sorter, UHD deep learning color sorter, and integrated plastic bottle sorting equipment. In addition, the company also released the first domestic Internet platform for the food and food industry to promote the digital transformation of the rice processing industry and enhance overall market competitiveness. We believe that the domestic agricultural product color sorting market has entered a stage of steady development, but overseas markets, especially in developing countries and regions, are still in a period of rapid development. The competitiveness of the company's color sorter products is expected to continue to improve under the impetus of new technology and products, and there is a high degree of certainty that the business will continue to grow steadily.
② Medical equipment (dental CBCT, etc.): 2023H2, the company's CBCT revenue is 760 million yuan, YOY 8.5% (2023H1 revenue 303 million, YOY 1.3%), and there are signs of recovery in demand. It is worth noting: After continuous overseas market layout, the company's oral CBCT exports in 2023 have begun to take shape. In addition, the spinal surgery navigation device, which obtained a registration certificate in early 2023, has been exemplary promoted and applied in many hospitals since 2023. It has successfully completed dozens of spinal surgeries and is being methodically applied to the mass market; in February 2024, the latest product developed by the company, mobile head CT, successfully obtained a medical device registration certificate issued by the State Drug Administration, marking another breakthrough in the field of high-end medical imaging. We believe that with the gradual maturity of the distribution network, the company's CBCT overseas market is expected to gradually usher in relatively rapid volume in 2024-2025. At the same time, the domestic CBCT installation demand is expected to increase rapidly, driving the company's dental CBCT business back to a high growth trend, while spinal surgery navigation equipment and mobile head CT are expected to gradually contribute to performance flexibility.
③ X-ray industrial inspection machine: In 2023, the company's X-ray industrial inspection machine revenue was 160 million yuan, YOY 61.0%, and growth was impressive. The company entered this field early, has mature technology and complete products. In 2009, after launching the first domestic X-ray foreign matter detector, the company gradually focused the market on food, tires and other fields. Considering that industrial X-ray inspection is widely used in industrial production and is an important part of product quality supervision and control, application scenarios are gradually opening up. We believe that part of the company's business is expected to maintain a relatively rapid growth rate in 2024-2026.
Profitability analysis: Operational quality improved significantly, profitability declined slightly under competitive pressure. Gross margin and net profit margin: In 2023, the company's gross margin was 51.49%, a year-on-year decrease of 1.48pct, and the net sales margin was 30.71%, a year-on-year decrease of 3.77pct. We found that it was mainly related to a large increase in financial expenses (2.5 pct increase, mainly due to a decrease in the company's exchange earnings). Overall, considering that the company is still in an absolute leading position in the field of color sorters and dental CBCT, we believe gross margin may decline slightly in 2024-2026 as competition in the industry gradually intensifies.
Expense rate for the period: In 2023, the company's sales expense ratio was 11.67 pct, the year-on-year increase of 0.91 pct, the management expense ratio was 4.27%, the year-on-year decrease of 0.79 pct, the financial expense ratio -2.07%, the year-on-year increase of 2.51 pct, the R&D expense ratio was 6.13%, and the year-on-year increase of 0.34 pct. Looking ahead to 2024, we expect the company's operating expenses to be generally stable.
Operating quality: In 2023, the company's net operating cash flow was 680 million yuan, up 113.8% year on year, accounting for 92.8% of net income from operating activities, with a significant year-on-year improvement (42.9% in 2022). According to the company's 2023 annual report, it was mainly due to an increase in cash received from the company's sales products and a decrease in purchase payments.
Profit Forecast and Valuation:
We expect the company's EPS to be 0.94, 1.08, and 1.24 yuan respectively in 2024-2026, and the closing price on March 30, 2024 will be 20.5 times PE in 2024. Considering the stability of the company's cornerstone business, the gradual implementation of dental implant collection in 2023 brings about a rapid release of CBCT demand, and the company's dental CBCT business is expected to return to a high growth trend. Furthermore, spinal surgery navigation equipment and mobile head CT are expected to gradually contribute to flexible performance and maintain a “buy” rating.
Risk warning
Market competition brings the risk of declining gross margin, risk of overseas expansion falling short of expectations, risk of falling short of expectations in developing and promoting new products, risk of policy changes, etc.