2023 and 1Q24 results fell short of our expectations
The company announced full-year 2023 and 1Q24 results. Revenue in 2023 was $7.980 billion, -25% YoY, after deducting non-net profit of $1,123 million, or -48% YoY. Revenue for the first quarter of 2024 was $1,922 million, -21% year over year; after deducting non-net profit of $456 million, -19% year over year. Due to factors such as the year-on-year decline in revenue from emergency rapid test kits and PCR instruments, drug collection, and medical industry rectification, the company's 2023 and 1Q24 performance fell short of our expectations.
Development trends
The decline in in vitro testing dragged down the company's overall performance, with the pressure most evident in the fourth quarter of 2023. Looking at the full year of 2023 by sector: 1) Medical device revenue was -37.5%, including coronary revenue +3%, structural cardiac revenue +29%, surgical anesthesia revenue +9%, and in vitro diagnosis revenue -78% year-on-year, mainly due to the large contribution of emergency rapid test kits and PCR instruments and equipment in the same period last year. 2) Drug revenue was -11.5% year-on-year, and revenue from formulations and APIs was -11.9%/-8.6% year-on-year, respectively. 3) Revenue from medical services and health management was -2.4%. Excluding emergency related products, this sector's revenue was +6.5% year-on-year. On a quarterly basis, 4Q23 was under the most obvious pressure, showing a net loss of 163 million yuan in a single quarter. We also anticipate the combined effects of industry restructuring.
There was a month-on-month recovery in 1Q24, and the company guided the full year of 2024 to 2-2.25 billion yuan to deduct non-profits. The company said that the impact of emergency operations was fully cleared in 1Q24, and revenue and profit for the quarter showed a month-on-month improvement trend. Coronary revenue +6% year over year, +22% month on month; drug revenue -16% year over month, +26% month on month; service and health revenue -40% year over year, -14% month on month. Management is optimistic about the subsequent regular business growth guidelines. It expects revenue of 85-9.5 billion yuan for the full year of 2024, after deducting non-profit of $2-2.25 billion.
Follow the progress of innovative cardiovascular devices. As of 1Q24, the company's coronary shock wave balloons, FFR, and degradable PFO/VSD ocloaders have been approved for marketing; products such as spiny balloons, degradable ASD blockers, and TAVI self-inflating short stents are in the registration approval stage. The company expects coronary shock wave balloons to contribute 1-2 billion yuan in revenue this year. We recommend following the company's product registration and commercialization progress in the core cardiovascular field.
Profit forecasting and valuation
Considering the impact of factors such as the collection of pharmaceuticals and consumables and the restructuring of the medical industry, we lowered our 2024 non-net profit deduction forecast by 11% to 2 billion yuan, and introduced a deduction of 2,283 billion yuan of non-net profit for 2025 for the first time. The current stock price corresponds to the 2024/25 price-earnings ratio of 12.5/11.0 times. We maintain our outperforming industry ratings. We lowered our target price by 12% to 20 yuan, corresponding to the 2024/25 price-earnings ratio of 18.8/16.5 times, and there is 50% room for an increase of 50% compared to the current stock price.
risks
Procurement prices have been reduced, new product releases have fallen short of expectations, research and development has failed, and internationalization has fallen short of expectations.