Key points of investment

Incident: The company released its 2023 annual report. In 2023, the company achieved revenue of 1,209 million yuan (+0.58%, year-on-year growth rate, same below); net profit after deduction of 278 million yuan (-9.72%); 2023Q4 The company achieved revenue of 416 million yuan (-5.72%) in a single quarter, achieving net profit of 97 million yuan (-0.83%).

The impact of collection is gradually being cleared up, and the company's basic business is expected to return to new growth. In 2023, the company achieved revenue of 1,209 billion yuan (+0.58%). The company actively broadened marketing channels and increased product marketing efforts. Revenue increased slightly compared with the previous year. In terms of business segmentation, the company conducts in-depth research and analysis of the national volume procurement policy and actively implements it to ensure the stable supply of selected products, standardize the procurement and use behavior of medical institutions, etc., to promote the smooth implementation of the selected results of artificial joint collection. In the field of orthopedic joints, the company won the bid for all hip products that participated in the report. In the spine field, the centralized procurement of orthopedic spinal consumables organized by the state resulted in the selection results. All eight product system categories submitted by the company won bids, and each region implemented them one after another starting in the first quarter of 2023. In the field of sports medicine, in November 2023, the state organized the collection of high-value medical consumables, and the company won the bid for all sports medicine products. It is expected that the company will use the collection opportunity to increase the company's market share, and at the same time accelerate the admission of the company's products to hospitals through collaborative advantages through the company's orthopedic product channels.

Actively expand overseas markets and achieve rapid growth in foreign revenue. Overseas revenue of 198 million yuan (+82%) was achieved in 2023, increasing its share of revenue to 16%. The company continues to optimize overseas strategic planning, accelerate registration in various countries, increase the number of sales team personnel and team building, introduce high-end talents with international sales experience, and accelerate the localization process in overseas markets. In terms of products, we have accelerated market entry for overseas products. In 2023, the company obtained product registration certificates in many countries. The company's three series of hip, knee and spine products have successfully passed the CE annual system review and supervision review, enhancing the competitiveness of the company's products. In the future, the company will continue to expand the region by integrating the market, broadening sales, and strengthening after-sales service to promote the rapid development of the company's overseas business.

Continued investment in R&D was increased, and product approval and evidence collection were accelerated. In 2023, the company invested about 157 million yuan in R&D, accounting for about 13% of revenue. A number of products have been approved, which is expected to add new revenue growth points to the company. In the field of artificial joints, the company obtained a trabecular acetabular gasket registration certificate, 3D printed “hip prosthesis” registration certificate, 3D printed acetabular cup, etc., marking a breakthrough in the field of 3D printed artificial prostheses. In addition, the company's vitamin E high-crosslinked polyethylene hip and knee products were approved and marketed by the State Drug Administration, further enriching the joint product line, which will further increase the company's artificial joint market share; in the field of spine, the company has obtained registration certificates for products such as self-stabilizing cervical intervertebral fusions, artificial vertebral fixation systems, and laminar plate fixing systems; in the field of sports medicine, the company has obtained PEEK material wired anchors, disposable planing blades, interface screws, non-absorbable wire anchors, titanium plates, door nails, etc.; Injury area, bone plate Various products such as intramedullary nails, external fixation stents, and metal bone needles have been approved for marketing; in the dental field, the company has obtained registration certificates for orthodontic products such as orthodontic wire, orthodontic braces, orthodontic buccal tubes, and invisible braces; maxillofacial surgery registration certificates such as maxillofacial plate systems and 3D printed maxillofacial osteotomy guides; dental phosphates, dental temporary crown bridge resin, fluorinated foam, etc.; in terms of PRP products, the company has successively been approved to market platelet-rich plasma preparation kits, platelet-rich plasma preparations, and medical centrifuges, including platelet-rich plasma The kit is the first fully automatic platelet-rich plasma preparation system in China. The acquisition of multi-category registration certificates further enriches the company's product line and is expected to enhance the company's overall competitiveness.

Investment advice: Based on the disclosure of the company's 2023 annual report, we fine-tune the profit forecast. The company's net profit for 2024-2026 is estimated to be 3.50/4.39/543 million yuan (3.66/4.82 before 24/25, respectively), with growth rates of 26%/25%/24%, respectively, and corresponding PE 21/17/13 times, respectively. Considering that the impact of the company's joint and spine inventory is gradually being cleared, the renewal of the knee joint products is expected to bring flexibility in performance, and the basic market business is expected to resume growth. At the same time, approval of various new products brings new revenue growth points, and overseas business expansion is accelerated. It is expected that the company's business will resume growth and maintain a “buy-A” rating.

Risk warning: Risk of product sales falling short of expectations, risk of concentrated volume procurement, and increased risk of market competition.