Incidents:
The company released its annual results report for the year 23, achieving annual revenue of 1,209 billion yuan (+0.6%), achieving net profit attributable to shareholders of listed companies of 278 million yuan (-9.7%), and net profit not attributable to mother of 255 million yuan (-8.3%).
Comment:
Policy side: The overall impact of the policy is clear, domestic substitution is expected to accelerate, and I am optimistic about the development opportunities of the industry in 24 years. 1) The impact of joint collection on the price side has been clarified, and the second bid renewal is expected to obtain a higher bid price; 2) in the spine sector, all eight product system categories submitted by the company were successfully implemented in Q1 in 2023. Currently, the impact of the return and exchange of spinal products has basically been digested; 3) In the field of sports medicine, the company's related products have won the bid on all lines. The collection is expected to land in Q2-3 in '24. The sports medicine sector has a low base, and it is expected that policy opportunities will be used to achieve rapid entry and increase market share.
Financial side: Profit performance declined slightly, rates declined steadily during the period, and overall operations were steady. 1) During the reporting period, the company achieved a gross profit margin of 72.5% (-3.5pct), a net profit margin of 23.0% (-2.6pct), and a net profit margin of 21.0% (-2.0pct) without return. The overall profit performance declined, mainly due to the drop in factory prices and the impact of product returns and exchanges due to the implementation of the collection policy; 2) The overall cost rate remained stable during the period. Among them, the sales/management/R&D/finance expense ratios were 31.7%/3.7%/13.0%/-1.4%, respectively, and the main cost structure remained stable; 3) Net cash flow from operating activities accounted for 42.3% of revenue (+38.9pct), an increase of 470 million yuan over the previous year, mainly due to increased customer payments. The turnover ratio of the company's accounts receivable in '23 was 2.7, which remained stable from '22.
During the reporting period, the company actively explored the international market, and overseas market performance increased significantly. 1) Overseas markets achieved revenue of 198 million yuan (+81.7%) in '23, accounting for 16.4% (+7.3pct) of overseas revenue. Overseas performance grew rapidly during the reporting period, and we are optimistic about the long-term performance contribution of overseas markets. Overseas markets achieved a gross profit margin of 63.8% (+0.7pct), and overseas market profitability remained stable; 2) In 2023, the company obtained product registration certificates in many countries. At the same time, the company's three series of hip, knee and spine products have successfully passed the CE annual system review and supervision review, which shows the strong competitiveness of the products in the international market.
Profit forecast and investment advice: The company is one of the leading orthopedic consumables companies, and the product pipeline continues to improve. We expect the company to achieve revenue of 1,493/18.35/2,239 billion yuan in 2024-2026 and net profit to mother of 340/4.23/535 million yuan, corresponding to PE 22/18/14 times, respectively. After the implementation of the collection policy, it is expected that domestic substitution will be accelerated. The company may benefit from it, cover it for the first time, and give it an “increase in wealth” rating.
Risk warning: Overseas expansion falls short of expectations, policy risks, and competitive failure risks.