Matters:

The company released its 2023 annual report, with revenue of 10.012 billion yuan (+7.87%), net profit to mother of 654 million yuan (+30.78%), and net profit after deducting non-net profit of 619 million yuan (+23.20%). Q4 Single quarter revenue was $2,695 million (+2.42%), net profit attributable to mother was $75 million (-5.99%), and net profit after deducting non-net profit was $64 million (-9.74%).

Commentary:

Focus on the main business, and the revenue structure continues to improve. In '23, the company's medical device revenue was 4.167 billion yuan (+9.15%), and pharmaceutical equipment revenue was 1.9 billion yuan (+26.73%). Both increased their share of total revenue from 57.47% in '22 to 60.82% in '23. The company focuses on its main business, concentrating its advantages on developing manufactured products in the medical equipment, pharmaceutical equipment and other sectors. The company's revenue structure has been significantly optimized, and the proportion of revenue achieved by the company's manufactured products in operating income is constantly increasing. Furthermore, the company's capital increase was successfully implemented in February 23. The capital raised projects are mainly used for intelligent manufacturing and supporting projects based on flexible processing production lines, which will further accelerate the upgrading of the company's product structure.

Thanks to the “Belt and Road” policy, international business has grown rapidly. The company's international revenue (self-employment) was 241 million yuan (+55.36%) in '23, and continued to grow rapidly. At the same time, the gross margin of the international business reached 50.94% (+7.86pct), which is far higher than the gross margin level of the domestic business. The growth of the international business will accelerate the increase in the company's profitability. In '23, the company optimized the functions of 4 regional sales centers to achieve market breakthroughs and improvements for high-end products and top three hospital customer markets; the “Belt and Road” Entrepreneurs Conference approved and signed contracts; accelerated the establishment of overseas offices to promote the effectiveness of standards for export products and production lines, achieve rapid export growth, and five major product line model projects blossomed and implemented.

Gross margin continues to be optimized, and profit levels have increased. Benefiting from the optimization of the product structure, the company's gross margin continued to increase, reaching 27.37% (+0.93pct); the company's sales expense ratio was 9.12% (-0.44pct), management expenses ratio 5.20% (+0.23pct), R&D expenses ratio was 4.43% (+0.11pct), financial expenses ratio 0.14% (-0.25pct), and the net profit margin increased from 5.42% in '22 to 6.53% in '23, further improving profitability.

The company's product structure will be optimized at an accelerated pace under factors such as the launch of fund-raising projects and the increase in the share of international revenue, and profitability will gradually increase.

Profit forecasting, valuation and investment ratings. Based on the 23-year performance, we expect the company's net profit to be 8.3, 10.4, and 1.28 billion yuan (the original forecast values for 24-25 were 9.0 billion yuan and 1.11 billion yuan, respectively), up 27.3%, 24.7%, and 23.5% year-on-year. EPS was 1.78, 2.22, and 2.75 yuan, respectively, and the corresponding PE was 13, 10, and 8 times, respectively. Referring to comparable companies, the company was given a valuation of 18 times in 2024, corresponding to a target price of about 32 yuan, maintaining a “recommended” rating.

Risk warning: 1. Fund-raising projects fall short of expectations; 2. Product development progress falls short of expectations; 3. Overseas market development falls short of expectations.