Event: The company released its 2023 annual report and 2024 quarterly report.

(1) 2023: The company achieved operating income of 470 million yuan, a decrease of 1.31% year on year; net profit due to mother was 146 million yuan, a decrease of 20.19% year on year; net profit after deducting non-return to mother was 136 million yuan, a decrease of 19.2% year on year. In 23Q4, the company achieved operating income of 94.35 million yuan, a year-on-year decrease of 24.4%; net profit to mother of 27.52 million yuan, a year-on-year decrease of 35.54%; net profit deducted of 25.37 million yuan, a year-on-year decrease of 35.62%; gross profit margin of 62.2%, an increase of 1.1 pct; and a net profit margin of 27.95%, a year-on-year decrease of 2.94 pcts. The year-on-year decline in net interest rate was mainly due to a significant increase in the current management expense ratio (22Q4 10.3% → 23Q4 16.15%, +5.84pct). The reason was that the company implemented a restricted stock incentive plan, which led to a year-on-year increase in share payment fees.

(2) 24Q1: The company achieved operating income of 117 million yuan, a year-on-year decrease of 20.7%; net profit to mother of 38.44 million yuan, a year-on-year decrease of 20.68%; net profit of 36.46 million yuan, a year-on-year decrease of 21.4%; gross profit margin of 64.5%, a year-on-year decrease of 0.04 pct; and a net profit margin of 32.28%, an increase of 0.14 year-on-year, and remained stable.

Fluctuations in the company's performance are mainly related to the preparation cycle for major customers, and the independent brand business has maintained a rapid growth trend.

(1) ODM&OEM business: In 2023, the company's ODM business revenue was 300 million yuan, accounting for 65.89%, a year-on-year decrease of 7.8%; OEM business revenue was 95.62 million yuan, accounting for 20.41%, a year-on-year decrease of 11%. In the second half of 2022, the company's US customers prepared for the launch of next-generation endoscopic systems. Shipments of the company's fluorescence laparoscopes increased dramatically in the second half of 2022, increasing the company's 2022 performance by 54% compared to 2021. At the same time, US customers' fluorescence laparoscopy inventory rose sharply. However, since the US customer's new system actually went on sale much later than originally planned, it wasn't officially launched until September 2023, causing customers to mainly consume inventory for a long period of time after the launch of the new system. As a result, the company's fluorescence laparoscopy shipments declined in the second half of 2023, which directly affected the company's sales revenue in 2023. If the above factors are excluded, the company's main business has maintained a continuous upward trend for the past three years.

(2) Self-branded products: In 2023, the company's own-brand products achieved revenue of 64.16 million yuan, accounting for 13.70%, an increase of 91.27% over the previous year. Among them, the company's endoscopic products grew strongly in the domestic market, with a year-on-year increase of about 83%, mainly due to the company actively exploring the domestic market, improving the marketing network system, and enhancing brand influence. The company actively lays out its own brands of core components such as light sources and camera systems, as well as complete machine products such as external surgical systems and endoscopy systems, and is actively expanding into the field of clinical medical optical imaging solutions. The company has successively obtained product registration certificates and production licenses for light sources and camera systems, supporting endoscopic products, and forming its own brand of 4K endoscopic systems, 3D endoscopic systems, and 4K automatic defogging endoscope products. In the next few years, the company will continue to iterate on core endoscope components and complete machine products, and continue to develop camera systems based on multi-chip CMOS, thereby further improving the company's product level, adapting to the trend of localization substitution, and expanding the company's competitive advantage, market share and influence in the domestic market.

The company has strong R&D strength and a rich new product echelon to drive long-term growth.

In 2023, the company invested 658.933 million yuan in R&D, an increase of 10.01% over the previous year, and R&D investment was fully funded; R&D investment accounted for 14% of revenue, an increase of 1.44 pct over the previous year. In terms of medical endoscopy:

(1) The company's next-generation endoscopy system for US customers was officially launched in September 2023; (2) The new 4mm hysteroscope developed by the company for the US market has completed product finalization and preparations for mass production have begun. It is expected to be officially launched on the market in June 2024. At the same time, the company is also developing 2.9mm cystoscopes, 3mm pediatric laparoscopes, and open surgical exoscopes for American customers. The company's cooperation with American customers extends from the original laparoscopy to the fields of urinary, gynecology, and open surgery;

(3) The company has completed product registration for arthroscopy, 3D laparoscopy, and thoracic endoscopy in the domestic market, and has begun to market;

(4) The company's full range of laparoscopes for the domestic market, including white light, fluorescence, defogging, 3D fluorescence, standard length, extended, and ultra-fine laparoscopes are being registered and obtained one after another. It is expected that registration will be completed in 2024. At that time, the company's laparoscopy will fully cover the needs of abdominal surgery;

(5) Endoscopic products such as hysteroscopy, cystoscopy, and sinusoscopy developed by the company for urology, gynecology, and head and neck surgery have completed product development and have begun registration tests. It is expected that the products will complete registration in mid-2024. These small lenses will strongly support the company's brand building and business development in specialties such as gynecology, head and neck surgery;

(6) The company's second-generation endoscopic camera system began receiving evidence one after another in November 2023, and has now been launched on the market and sales have been formed.

Investment advice:

Buy-A investment rating, 6-month target price of 56.7 yuan. We expect the company's revenue growth rates from 2024 to 2026 to be 34.2%, 30.1%, and 27.4%, respectively, with outstanding net profit growth rates of 58.1%, 31.9%, and 30.3%, respectively; maintaining the investment rating given to Buy-A, the target price for 6 months is 56.7 yuan, which is equivalent to a dynamic price-earnings ratio of 30 times 2024.

Risk warning: Uncertainty in the international trade situation; uncertainty about the industry's inventory digestion process; uncertainty about domestic medical policies; uncertainty about the progress of new product promotion.