Revenue increased slightly in 2023, and spinal and trauma implants were released rapidly. Revenue of 1,094 million yuan (+4.0%) was achieved in 2023, with net profit of 182 million yuan (-11.1%); of these, revenue of 445 million yuan (-14.5%) was achieved in the second half of the year, and net profit to mother was 50 million yuan (-37.1%). The number of patients seeking medical treatment increased significantly in the first half of 2023. The number of hospital-side orthopedic surgeries peaked in the second quarter, but the centralized remediation work carried out in the third quarter of the country affected the number of surgeries in public hospitals to a certain extent in the short term, as well as the promotion and application of innovative high-value-added products in hospitals. By category, revenue from hip joints was 590 million (-9.9%), revenue from knee joints was 311 million (+16.9%), revenue from spinal and trauma implants was $123 million (+105.4%), and revenue from customized products and services was 50 million (+5.6%). Looking at the subregion, domestic revenue was 867 million (-2.2%) and overseas revenue was 227 million (+37.1%) in 2023. The company will integrate Elken and JRI's market resources to develop collaboratively, making overseas business a second growth engine.
Gross profit margin rebounded year on year, and all expense ratios increased to varying degrees. The gross margin for 2023 was 61.9% (+1.2pp year on year), mainly due to the company's active cost control and increased share of overseas revenue, and the low gross profit base due to price discounts for specific spine products in the same period in 2022. The sales expense ratio was 19.9% (+2.8pp compared to the previous year), market development and promotion activities increased, and sales staff labor costs and travel increased. Management expense ratio is 12.1% (YoY +0.9pp), R&D expense ratio 12.5% (+2.0pp), financial expense ratio -1.8% (YoY +0.1pp), and net interest rate is 16.6% (YoY -2.8pp).
Continue to build a research and development system that leads innovation and combines technology with the market. In 2023, the company obtained 18 new medical device registration certificates approved by the National Drug Administration, including 3D printed knee prostheses, 3D printed second-generation intervertebral fusion devices, 3D printed matching long bone and thoracolumbar prostheses, and hip surgery robots. The innovative single-condyle product HAUK and the 3D printed hip-front product system have been well received in the market. The newly launched Apollo self-stabilizing vertebral body product is the first 3D printed self-stabilizing vertebral body product in the country. Osteo Match, a product system that adapts the elastic modulus of prostheses to bone modulus, includes intervertebral fusion devices and artificial vertebral systems. It is the first international spinal fusion prosthesis system that matches bone modulus biomechanically. The introduction of the 3D printing TC Bridge effectively solved the problem of repair and reconstruction of complex large bone defects in the limbs, and brought the company's exploration of 3D printing technology to a new level and field.
Investment advice: Lower the 2024-25 profit forecast and add the 2026 profit forecast. The estimated net profit for 2024-26 is 2.65/3.48/443 million yuan (2024-25 was originally 3.48/456 million), an increase of 45.7%/31.0%/27.3% year over year; EPS is 0.24/0.31/0.40 yuan, and the current stock price is 21/16/13 times PE. The collection risk was clarified, optimistic about the company's long-term growth potential, and maintained a “buy” rating.
Risk warning: the quantity of joint products released is lower than expected; risk of market competition; risk of contract renewal and price reduction.