Incident: The company released its 2023 annual report, achieved revenue of 1.65 billion yuan (+35.7%) in 23, realized net profit of 530 million yuan (+49.1%), and achieved deduction of 4.7 billion yuan (+45.5%). Of these, 23Q4 achieved operating income of 400 million yuan (+32.8%) and net profit of 130 million yuan (+34.1%) to mother. In 23 years, the company actively expanded domestic and foreign markets, further improving product coverage.

The 23-year results were in line with expectations, and the net interest rate increased significantly. On a quarterly basis, 2023Q1/Q2/Q3/Q4 revenue was 3.5/4.4/4.3/4.4 billion yuan (+31.7%/+28.4%/+32.8%), respectively, and net profit to mother for the single quarter was 1/1.5/1.5/130 million yuan (+53.7%/+68%/+43.4%/+34.1%), respectively. The revenue growth rate was rapid throughout the year of '23. The main reason was that the company actively expanded domestic and foreign markets, further increased product coverage, the company insisted on technological innovation, and the product layout was continuously improved. In terms of profitability, the net profit growth rate in '23 was higher than the revenue growth rate, mainly due to the increase in profit margins brought about by cost reduction and control fees. In terms of cost ratios, sales/management/R&D/finance expenses were 18.5%/14.4%/-0.2%, respectively. The sales expense ratio decreased by 1.4 pp in 23 years, mainly due to an increase in sales staff wages, travel expenses, and market investment, but the rate of increase was less than revenue, and the overall cost control effect was quite obvious.

Electrophysiology products are gradually increasing their market share, and domestic alternatives are in a positive window. The company's sales scale continues to expand, and domestic electrophysiology is still focusing on the entry and growth of core strategic products, upgrading from two-dimensional surgery to three-dimensional surgery as scheduled, and seizing market share. As an industry leader, Huitai Medical has filled the gaps in domestic production of electrophysiological electrode catheters and controlled radiofrequency ablation electrode catheters. The company's 3D electrophysiological labeling system injects strong needles into domestic 3D ablation surgery products. Currently, the company covers 800+ hospitals and has completed more than 10,000 3D electrophysiological surgeries throughout the year. The number of surgeries has increased by more than 200% compared to 2022, and the increase in market share has led to an increase in production and sales.

Vascular intervention strengthens channel linkage, and the penetration rate of admission is further increased. Vascular interventional products continue to increase marketing efforts, deepen channel linkage, and achieve further product coverage and hospital penetration. As production technology becomes more mature, doctors' education is strengthened, and clinical recognition increases, the penetration rate of products in this field will continue to increase, driving the overall market for vascular interventional devices to continue to grow rapidly. The peripheral intervention sector is expected to reach a market size of nearly 5 billion in 2024. The company's peripheral intervention revenue rose from 33 million in 2019 to about 260 million in 2023 (a compound growth rate of 67%). At present, the company has established 18 vascular intervention product lines, including vascular sheaths, microcatheters, contrast catheters, catheter guides, balloon catheters, hydrophilic coated guide wires, guide guide wires, microguide wires, support catheters, and various OEM product lines, which have increased production capacity by 50% compared to 2022. The subsidiary Hunan Ept has expanded production capacity. In 2023, the new production base has completed planning, design, and construction. The new plant area will be planned and laid out according to the idea of large-scale, automated, intelligent, and continuous flow. The first phase of the project has already been completed and is expected to be put into use in the second quarter of 2024.

The international business increased its marketing efforts, and the revenue growth rate was as high as 59% in 23 years. The international business actively expands distributors, increases market promotion, focuses on international clinical academic exchanges and expert experience sharing in the clinical application of products, and continues to increase the recognition and confidence of international experts in the company's products. By actively participating in academic exchanges and holding related events, the company showcased research results of core products in the field of clinical application, further consolidating its competitive position in the international market. The share of international business revenue increased from 12.1% in 2022 to 14.2% in 2023, and the revenue growth rate was as high as 59%, which can be expected in the future.

Profit forecast and investment advice: The company is a leading domestic electrophysiology and vascular intervention company. The company has a rich production line and excellent product performance. With the further expansion of market demand and market share in the future, it is expected that the leading effect will become more obvious, and domestic production replacement can be expected in the future. We expect a compound growth rate of 29.4% in net profit for the next three years, maintaining a “holding” rating.

Risk warning: market competition risk, policy control risk, R&D failure risk, risk of new product release falling short of expectations.