Introduction to this report:
2024Q1's profit exceeded expectations, and the overseas development trend was rapid. By increasing product gross margin and reducing management/R&D expenses, the scale expansion is gradually turning into value growth and maintaining an increase in holdings rating.
Key points of investment:
Maintain an increase in holdings rating. In 2010, the company achieved revenue of 2,411 billion yuan (+21.78%), net profit of 486 million yuan (+47.01%); 2024Q1 achieved revenue of 620 million yuan (+12.72%), net profit to mother 143 million yuan (+41.36%), net profit after deducting non-return to mother of 141 million yuan (+42.21%), and profit exceeded expectations. Considering the impact of collection, the 2024-2025 EPS forecast was lowered to 3.24/3.96 yuan (originally 3.28/4.11 yuan), the 2026 EPS forecast was added at 4.81 yuan, and the target price was maintained at 88.56 yuan, corresponding to the 2024 PE27X, maintaining the shareholding increase rating.
Overseas developments are booming. (1) Domestic revenue of 1,353 billion yuan (+18.21%) in 2023, still achieved steady growth under the influence of industry rectification and visualization of inventory; (2) Overseas revenue of 1,042 million yuan (+25.8%), showing rapid growth, with Asia Pacific overseas 130 million (+30%), Europe 410 million (+31%), and the US 4.7 billion (+23%). The company's overseas marketing reforms have achieved remarkable results, such as refining sales regions in the US, European distribution to direct sales, etc., with direct sales revenue of 457 million yuan (+49%) in 2023.
Change your strategy and turn scale expansion into value growth. Profit growth in 2023 and 2024Q1 was significantly faster than revenue growth. (1) 2023 gross margin was 64.5% (+4pct). Among them, gross margins in major categories such as hemostasis clips, biopsies, and expansion all increased. Cost reduction and efficiency were achieved through the introduction of automated processes and optimization of procurement costs. 2024Q1 gross margin continued to increase 5.4pct year-on-year to 68.31%. (2) In 2023, management/R&D cost rates were -1.98/-2.10pct, respectively, and 2024Q1 management/R&D expense ratios were -0.56/1.45pct, respectively. Net profit margins were increased by reducing management costs, streamlining R&D pipelines, and scaling up overseas.
The impact of harvesting in Hebei is limited, and many categories are expected to hedge against risks. The Hebei Alliance is limited in size, which has had a slight impact on dealers' enthusiasm to pick up goods in the short term. Through visualization and other product layouts, the performance is expected to remain steady.
Risk warning: Product commercialization fell short of expectations, and volume procurement price reductions exceeded expectations.