The performance was partly affected by collection, and overseas business revenue increased dramatically. In 2023, we achieved revenue of 1,209 million yuan (+0.6%), net profit attributable to mother of 278 million (-9.7%), and net profit of non-return to mother of 255 million (-8.3%).

Among them, the fourth quarter achieved revenue of 416 million yuan (-5.7%) and net profit of 97 million yuan (-0.8%) to mother.

The decline in the company's performance was partly affected by “volume procurement”. Spine State Procurement was implemented one after another in the first quarter of 2023, the sales price of related products fell, and the business portion in the third and fourth quarters was affected by the phased restructuring of the industry. In 2023, revenue from joint prosthesis products was 1.01 billion (+5.2%), gross profit margin 73.7% (-3.1 pp); other revenue was 107 million (-30.0%), gross profit margin 60.2% (-10.4pp).

In 2023, the company's overseas sales revenue was 198 million, up 81.73% year on year. The revenue share rapidly increased to 16.4%, and the gross margin remained around 64%.

Gross profit margin declined slightly, and cash flow improved significantly year over year. The company's gross margin for 2023 was 72.5% (-3.6pp). The sales expense ratio is 31.7% (-0.9pp), mainly due to a decrease in market development expenses; the management expense ratio is 3.7% (+0.5pp), mainly due to the increase in the number of personnel and rental and property expenses; the R&D expense ratio is 13.0% (-0.5pp), mainly due to the company's optimization of R&D management to improve R&D efficiency and quality of results; financial cost ratio -1.4% (+0.3pp). The company's net margin for 2023 was 23.0% (-2.6pp). In 2023, the company increased its efforts to repay accounts receivable and optimized term management. The net operating cash flow was 512 million yuan, a significant improvement over the previous year, and the ratio to net profit attributable to mother reached 169%. As of the end of 2023, the company's monetary fund book balance was $1,266 billion.

Intense R&D investment and continuous enrichment of product pipelines. R&D investment in 2023 was 157 million, a slight decrease of 3.02% over the previous year, maintaining a high level of investment. The company has made a breakthrough in the field of 3D printed artificial joint prostheses. Vitamin E high-crosslinked polyethylene hip and knee products were approved for the first time in China, continuously enriching the joint product line.

The spine field has obtained registration certificates for self-stabilizing cervical intervertebral fusion devices, artificial vertebral fixation systems, and laminar plate fixing systems. In addition, the company is actively deploying in the fields of sports medicine, dentistry, and active equipment to enhance overall competitiveness.

Investment advice: Considering the impact of the macro environment and collection execution, the 2024-25 profit forecast was lowered, and the 2026 profit forecast was added. Net profit for 2024-26 is expected to be 3.24/4.16/528 million (2024-25 was originally 4.09/513 million), up 16.6%/28.3%/27.1% year over year; EPS is 0.84/1.08/1.38 yuan, corresponding to PE 24/19/15 times PE. Chunli Medical has established a high brand awareness and leading market position in the field of joint prosthesis products. Using domestic procurement to increase market share and consolidate its leading position, new pipelines such as sports medicine, PRP, and dentistry will become new growth points. Currently, the penetration rate of joint surgery in China is low, and the industry is expected to maintain a high level of prosperity in the future. The collection risk was clarified, optimistic about the company's long-term development potential, and maintained a “buy” rating.

Risk warning: Joint and new product releases are lower than expected, market competition risks, and procurement renewal and price reduction risks.