Key points of investment
Performance:
In 2023, the company achieved operating income of 24.1 billion yuan, YOY 21.8%, net profit of 47.0%, net profit after deducting non-return of 490 million yuan, YOY 54.7%; 2024Q1, the company achieved operating income of 220 million yuan, YOY 12.7%, net profit to mother 140 million yuan, YOY 41.4%, net profit after deducting non-return to mother of 140 million yuan, YOY 42.2%;
Growth analysis: Steady domestic growth continues, and high overseas growth contributes to the main driving force ① Market regional situation: In 2023, the company's domestic sales revenue was 1.35 billion yuan, up 18.2% year on year, and overseas market sales revenue was 1.04 billion yuan, up 25.8% year on year. Looking at the regional situation, Asia-Pacific revenue was 1.3 billion yuan, an increase of 18.9% over the previous year; the American market introduced strategic consulting, developed and implemented market reforms, updated marketing teams, and segmented regions to achieve revenue of 471 million yuan, an increase of 22.58% over the previous year. The EMEA region further improved marketing network construction, increased support for British and French subsidiaries, acquired two channel companies in Portugal and Switzerland, and expanded the company's direct sales channels in Europe. The EMEA region achieved revenue of 411 million yuan in 2023, an increase of 30.87% over the previous year. In addition, Kangyou Healthcare's revenue was 213 million yuan, up 24.4% year over year.
② The transformation from scale growth to value growth has achieved remarkable results: In 2023, in the face of complex environments such as collection, DRG, and medical supervision, the company first proposed a new concept of shifting from scale growth to value growth, and clarified specific measures for open source, efficiency improvement, and cost reduction, with the goal of promoting rapid revenue recovery, hedging collection risks, and improving profitability, actively promoting strategic transformation, and achieving high-quality sustainable growth in the new market environment. Judging from the fact that the profit side grew significantly faster than the revenue side in 2023 and 2024Q1, the company's strategic planning results were remarkable. Looking ahead to 2024, the company's profit side is expected to continue to improve.
Overall, we believe that the company's fields and product structure are expected to be further optimized after new products such as visualization are launched one after another. We continue to be optimistic that the company will continue to empower new businesses and products with excellent medical transformation platforms, perfect market access and channel construction advantages, and open up the potential for long-term growth.
Profitability analysis: Under scale effects and product structure optimization, profitability increased gross profit margin: The company's gross profit margin was 64.5% in 2023, an increase of 3.55pct over the previous year. We estimate that it is mainly related to the rapid increase in the share of direct sales (direct sales accounted for 19.09% in 2023, an increase of 3.52 pct over the previous year), and visualizing the gradual scaling and dilution of costs for new products.
Net profit margin: In 2023, the company's net sales margin was 20.51%, an increase of 3.71 pct over the previous year. Period expenses: The company's sales expenses ratio increased by 1.86 pct year on year, and the management expenses ratio decreased by 1.98 pct year on year (mainly due to the reduction in expenses arising from implementing the equity incentive plan.) The financial cost ratio decreased by 0.16 pct year on year, and the R&D cost ratio decreased by 2.10 pct year on year. We expect that the company's revenue has gradually returned to a steady growth trend, and the company's net interest rate is expected to remain stable.
Operating quality: The company's net operating cash flow in 2023 was $546 million, an increase of 118.11% over the previous year. Net operating cash flow accounted for 104.63% of net income from operating activities, a slight increase over the same period last year (77.95% in 2022), mainly due to an increase in the amount of cash received by the company from sales products and a decrease in payment for the purchase of products.
We believe that with the rapid increase in the revenue scale of the company's overseas direct sales team, the steady increase in the share of direct sales, and the gradual emergence of new business scale effects such as visualization, the company's gross profit margin and net interest rate will continue to rise slightly in 2024-2026.
Profit Forecast and Valuation:
We believe that Nanwei Medical is one of the few domestic enterprises that rely on close medical engineering cooperation and can continue to cultivate new and exciting products. With the rapid recovery of domestic surgeries and the gradual optimization and visualization of the company's overseas marketing network, new businesses continued to grow and contributed to the second growth engine. We expect the company's EPS to be 3.25, 4.12, and 5.01 yuan respectively in 2024-2026. The current stock price corresponds to 2024 PE to 21.8 times, maintaining the “gain” rating.
Risk warning:
Volatility risks affecting equity incentives on apparent performance, risk of disturbances in the international situation, risk of sales of new products falling short of expectations, etc.