Key points of investment

Performance:

On April 17, 2024, the company released the 2023 and 2024 quarterly results. Specifically:

2023: Revenue of 740 million yuan, YOY 52.5%; net profit attributable to mother of 230 million yuan, YOY 81.0%; net profit after deducting non-return to mother of 200 million yuan, YOY 162.3%.

2024Q1: Revenue of 170 million yuan, YOY 18.1%; net profit attributable to mother of 39.07 million yuan, YOY 3.3%; net profit after deducting non-return to mother of 36.48 million yuan, YOY 12.1%.

Growth analysis: Platform attributes create core advantages, and cutting-edge technology layout opens up room for growth.

Business split: In 2023, the company's rehabilitation and physiotherapy equipment revenue was 459 million yuan (accounting for 61.6%), YOY 56.3%, rehabilitation training equipment revenue of 205 million yuan (accounting for 27.6%), YOY 47.8%, rehabilitation assessment equipment revenue of 35 million yuan (accounting for 4.8%), YOY 67.4%, operating and accessory product revenue of 37 million yuan (5.0%), YOY 22.9%.

Marginal changes: Under the low base of 2022, a new recovery cycle began in 2023, the interest-rate loan policy helped release demand for deferred equipment purchases, and the company's performance rebounded markedly. Judging from the marginal changes in the company's development in 2023-2024, it is worth paying attention to two aspects: ① The continuous optimization of the product structure has led to a continuous increase in profitability: the company has a steady increase in the proportion of high-end products with high gross margins, such as extracorporeal shock wave therapy devices, laser magnetic field physiotherapy devices, and ultra-short wave therapy devices, leading to a 2.35 pct year-on-year increase in the company's gross margin in 2023. At the same time, the company continues to increase investment in R&D, continuously broadens business boundaries (including post-natal rehabilitation, robotics), and continues to raise product technical barriers. In addition, in 2023, the company successively launched new products and product portfolios such as ankle rehabilitation training systems, transcranial magnetic AI navigation and positioning systems, and postpartum rehabilitation devices. At the same time, technologies such as smart sensors and the Internet of Things are used to intelligently upgrade traditional rehabilitation products, modernize medical care, and lay the foundation for further increasing market share. ② In the context of “new quality productivity”, the layout of cutting-edge technology is accelerating: In September 2023, “new quality productivity” was first proposed and listed as the top ten tasks in the 2024 government work report. The company accelerates the industry-university-research transformation process in the fields of AI+ rehabilitation devices, brain-computer interfaces, rehabilitation robots, etc., especially in terms of brain-computer interfaces. Since 2024, with the continuous maturity of brain-computer interface technology, its application scenarios are rapidly opening up. Currently, brain-computer interface and neurorehabilitation are hot technologies in the field of neural engineering. They are receiving more and more attention from researchers and clinicians, and are expected to rapidly promote product implementation and popularization in the future. In terms of market space, according to McKinsey's estimates, the potential market size of global brain-computer interface medical applications is expected to reach 40 to 145 billion US dollars in 2030-2040, bringing broad market space to the company's long-term development.

Overall, considering the continued promotion of favorable rehabilitation policies such as the “silver hair economy” in 2024 and the company's platform attributes, looking ahead to 2024-2026, we believe that the company is still expected to maintain a high growth trend.

Profitability analysis: Profitability quickly recovered, net operating cash flow improved significantly gross margin & net profit margin: In 2023, the company's gross sales margin was 68.62%, an increase of 2.35 pct year on year, and the net profit margin on sales was 30.65%, an increase of 5.42 pct year on year. Period expense ratio: In 2023, the company's sales expense ratio, management expense ratio, and R&D expense ratio decreased by 5.96, 1.84, and 4.58 pct, respectively. We believe that the slight increase in the company's gross margin in 2023 is mainly related to the continuous launch of the company's new products, the upgrading and improvement of old products, and a slight increase in the average sales unit price. The increase in net interest rates was mainly due to a sharp increase in revenue and diluted expenses.

Looking ahead to 2024-2026, and considering the gradual increase in the company's share of high-end products and the gradual increase in competitive pressure in the industry, we expect the company's gross margin to remain relatively stable. Furthermore, considering that in the context of the “silver hair economy” and “new quality productivity” in 2024, it is an important point in the layout of new technology and new directions, and the company's sales expenses rate and R&D expenses rate will increase slightly in 2024.

Operating quality: The net cash flow from the company's operating activities in 2023 was 228 million yuan, an increase of 22.07% over the previous year. The net operating cash flow accounted for 113.91% of the net income from operating activities, mainly due to a sharp increase in sales and an increase in cash received.

Profit Forecast and Valuation:

We believe that with the acceleration of the national rehabilitation policy, demand in the rehabilitation market will be released quickly. However, the company's first-mover advantage in the early stages of horse racing, combined with the company's continued improvement in profitability, will also help the company gain more market share. We expect that with the accelerated development of the industry, the company's EPS will be 1.63, 2.09 and 2.63 yuan in 2024-2026, and the current stock price will be 22.8 times PE in 2024, maintaining an “incremental” rating.

Risk warning:

Risk of failure in technological innovation or new product development; risk of increased market competition; risk of changes in industry policies, etc.