Key points of investment
Performance:
On April 25, 2024, the company released its 2023 and 2024 quarterly reports. Specifically:
In 2023, revenue of 462 million yuan, YOY 43.72%, net profit to mother of 136 million yuan, YOY 45.23%.
Net profit after deducting non-return to mother was 122 million yuan, YOY 58.93%. Excluding share payments, net profit attributable to mother was 153 million yuan, or 63.88% YOY.
2024Q1, revenue of 87.67 million yuan, YOY -8.24%, net profit to mother 21.75 million yuan, YOY -27.69%.
Net profit after deducting non-return to mother was 19.21 million yuan, YOY -27.42%. Excluding the impact of share payments, net profit attributable to mother was 277.5 billion yuan, or YOY -8.76%.
Growth analysis: 2024Q1 is under pressure in the short term. Looking forward to the medical and aesthetic release business structure: demand will be released rapidly in the new recovery cycle in 2023, and the company's performance will rebound rapidly. Judging from the business structure, the magnetic stimulation business has surpassed electrical stimulation to become the company's most important growth support since 2021. In 2023, the company's revenue from magnetic stimulation products was 200 million yuan, an increase of 46.6% over the previous year, accounting for 43.2% of total revenue. It is still the fastest growing sector among all important production lines. Judging from the channel structure, the company's three major business segments are developing in a balanced manner. We expect that the company's spirit and neurological rehabilitation will continue to grow rapidly, and pelvic floor and maternity will maintain steady growth. Overall, the company continues to expand its product pipeline and lay out multiple tracks. Emerging products in the fields of magnetic stimulation, laser radiofrequency, and rehabilitation robots have all made expected progress: among them, rehabilitation robots have formed a comprehensive product matrix covering the upper and lower limbs, which are expected to gradually improve market competitiveness and commercialization levels, and bring continuous contributions to the company's medium- to long-term growth; in addition, pelvic floor functional magnetic and transcranial magnetic stimulators under the company's magnetic technology platform and group biofeedback devices under the electrophysiological technology platform have all been updated, iterated and converted to market, and have all achieved good market feedback and sales performance.
Emerging businesses can be expected: The company continues to accelerate research and development of advanced technologies in the fields of magnetic stimulation, electrical stimulation, electrophysiology, rehabilitation robots, and laser radiofrequency, and continues to expand the product pipeline and layout multiple tracks. Among them, traditional advantage projects have been iteratively updated and achieved remarkable results: a new generation of pelvic floor functional magnets, transcranial magnetism, group biofeedback and other products have all been iteratively upgraded and launched, and the product market competitiveness has increased significantly, and the business scale and market share of core products represented by magnetic stimulation are growing rapidly. At the same time, the company's emerging products in the fields of magnetic stimulation, laser radiofrequency, and rehabilitation robots have all made expected progress, accelerating the formation of a new growth point: in 2023, the company successfully obtained Class II medical registration certificate for high-frequency electrocautery devices and Class III medical registration certificates; the plastic magnetic products obtained FDA certification and domestic medical device registration certificates. The product effect feedback was good; it has formed a comprehensive rehabilitation robot product matrix covering the upper and lower limbs. In the future, it will further reduce costs and increase efficiency, and continuously improve market competitiveness and commercialization levels.
We believe that the company's core highlights and rhythms are as follows:
Highlights for the first half of 2024: Focus on expanding the core product matrix+further expansion of the scale of business; Highlights for the second half of 2024: initial release of medical and aesthetic products, picosecond lasers are expected to be approved for sale within the year and enter the mainstream medical and aesthetic skin management market; 2025 highlights: The first generation of medical, aesthetic and rehabilitation core product matrices have been formed, and the entire market promotion is gaining strength, which may gradually lead to qualitative changes.
Overall, 2024Q1 was disrupted by factors such as the slowdown in bidding, and the company's product sales were under pressure in the short term, and the performance was slightly lower than our previous expectations. Despite this, we believe that as rehabilitation policies accelerate, the company's rehabilitation cornerstone business will continue to grow steadily. New products related to energy sources such as medicine and aesthetics are expected to gradually bring significant incremental contributions in 2024-2025 with equity incentives. We continue to be optimistic about the company's medium- to long-term growth and explosive growth in the context of the boom in the rehabilitation industry and the horizontal expansion.
Profitability analysis: Under product iteration and scale effects, profitability is basically stable.
Gross margin and net profit margin: In 2023, the company's gross margin was 71.76%, a year-on-year decrease of 0.71pct, and the net sales margin was 29.48%, an increase of 0.31pct year-on-year. We expect gross margin to be hampered mainly by increased pressure from the recovering competitive environment and the lack of scale effects in the early stages of new product launches. We believe that the scale effect brought about by the company's successive release of new products, and that the proportion of high-margin products (such as magnetic stimulation) continues to rise, which is expected to slow the decline in gross margin due to increased competition in the industry.
Expense rate for the period: In 2023, the company's sales expense ratio was 26.75%, down 1.71 pct year on year. It remained at a high level, mainly due to the increase in corresponding market activity under the recovery of demand. The management fee ratio was 10.27%, and the year-on-year decrease of 1.59 pct. We expect that with the rapid expansion of sales scale and the basic completion of medical and aesthetic team construction, the cost investment has gradually stabilized. The R&D cost ratio is 12.47%, a year-on-year decrease of 1.12 pct. Looking ahead to 2024, we believe that with the rapid growth of the company's business and the dilution of expenses, the company's operating expenses ratio is still declining, which is expected to bring about a slight increase in net interest rate.
Furthermore, during the demand recovery window, the company's operating efficiency improved markedly, and both accounts receivable and inventory turnover increased markedly year on year. As a result, the company's net operating cash flow in 2023 was 134 million yuan, an increase of 55.74% year on year, and net operating cash flow/net income from operating activities was 118.77%, which has maintained a continuous improvement trend since 2020.
Profit Forecast and Valuation:
Considering the acceleration of rehabilitation policies, the company's rehabilitation cornerstone business will continue to maintain steady growth. New products related to energy sources such as medicine and aesthetics are expected to gradually bring significant incremental contributions in 2024-2025. We expect the company's EPS to be 2.56, 3.38, and 4.23 yuan in 2024-2026. The current stock price corresponds to 2024 PE 16.9 times, maintaining a “gain” rating.
Risk warning
Industry competition increases risks, new product sales fall short of expectations, policy events, etc.