Key points of investment:
Results in 2023 fell short of expectations, and recovered in 2024: The company released its 2023 annual report. During the reporting period, it achieved operating income of 7.98 billion yuan, a year-on-year decrease of 25%; realized net profit of 1,258 billion yuan, a year-on-year decrease of 43%; realized net profit without return to mother of 1,123 billion yuan, a year-on-year decrease of 48%. Affected by changes in the domestic medical macroeconomic policy environment in 2023, the company's 2023 performance fell short of market expectations. The company also released its 2024 quarterly report. During the reporting period, it achieved operating income of 1,922 million yuan, a year-on-year decrease of 21%, and realized net profit of 482 million yuan, a year-on-year decrease of 19%. The base for the first quarter of 2023 was high. The company's 2024Q1 performance was in line with expectations, with a marked improvement from month to month. According to the company's 2023 annual report, the company's gross margin in 2023 was 64.24% (62.46% in 2022); the sales expense ratio was 20.36% (19.17% in 2022); the management expense ratio was 10.22% (7.00% in 2022); and the R&D expense ratio was 11.02% (9.02% in 2022).
By product: The device sector achieved revenue of 3,674 billion yuan, a year-on-year decrease of 37.50%. The in vitro diagnosis business contributed significantly to the revenue of emergency rapid test kits and PCR instruments in the same period in 2022. After excluding the in vitro diagnosis business, device revenue increased 6.70% year on year (of which, the revenue of the coronary implant intervention business increased 2.9% year on year; the operating income of the structural heart disease business increased 29.08% year on year; the operating revenue of the in vitro diagnosis business decreased 77.79% year on year) ; The pharmaceutical sector achieved revenue of 3,044 billion yuan, a year-on-year decrease of 11.47%. Among them, pharmaceuticals achieved revenue of 2,633 billion yuan, a year-on-year decrease of 11.90%; APIs achieved revenue of 411 million yuan, a year-on-year decrease of 8.60%; and the medical services and health management sector achieved revenue of 1,262 billion yuan, a year-on-year decrease of 2.37%.
R&D progress: According to the company's annual report, in 2023, the company's self-developed MemoSorb biodegradable oval hole unclosed occluder was approved for registration by the State Drug Administration. In January 2024, the single-use coronary intravascular shock wave catheters, intravascular shock wave therapy devices, and coronary mastoid balloon dilatation catheters independently developed by the company obtained registration approval from the State Drug Administration. New products such as radiofrequency atrial septal puncture systems, ASD degradable blockers, and non-invasive blood glucose meters are expected to be approved for marketing within 2024.
Maintaining the “purchase” rating: Affected by changes in the domestic policy environment and declining demand for COVID-19, the company's 2024 profit forecast was lowered (revenue growth rate of the two major sectors of equipment and pharmaceuticals was adjusted to 17% and 11%), and the net profit forecast for 2025-2026 was given for the first time. The estimated net profit to mother is 2.67 billion yuan, 12 times, and 11 times, respectively. The company's valuation is lower than the average of Shenwan's medical consumables sector (27 times and 21 times in 2024 and 2025, respectively) and maintains a “buy” rating.
Risk warning: R&D risks, exchange rate fluctuations, increased competition