Key points of investment
The company disclosed the 2023 annual report and 2024 quarterly report. The 2023 revenue was 7.972 billion yuan, up 12.3% year on year; net profit to mother was 2,396 billion yuan, up 50.2% year on year; net profit after deducting non-return to mother was 1,836 billion yuan, up 46.8% year on year. 2024Q1 revenue was 2,231 billion yuan, down 17.4% year on year; net profit due to mother was 659 million yuan, down 7.6% year on year; net profit after deducting non-return to mother was 551 million yuan, down 21.7% year on year. Profit continued to be released in 2023, and the growth rate of net profit not returned to mother was higher than the revenue growth rate. We believe that in 2024, the company is still in the profit release period. Although facing high base pressure, with the release of new products and stable strategic direction, it is expected to drive the release of the company's revenue and profit.
Growth: Demand for respiratory oxygen production is normalized, new product commercialization builds a new curve (1) Demand for respiratory oxygen products has returned to normal, and 2024Q1 revenue declined year on year. Demand for 2023H1, the company's respiratory oxygen production and other products exploded (revenue increased 109.99% year over year), and 2024Q1, with a high base in 2023 and normalization of demand in 2024, the company's overall revenue fell 17.4%. We believe that the high base in 2024 may put short-term growth pressure on the company's respiratory oxygen sector, but new product iterations are accelerating and demand is growing normally, and long-term revenue growth in the company's respiratory oxygen sector can be expected. (2) New product layout, construction of a new growth curve. On March 15, 2023, Yuyue Medical obtained NMPA certification for 14-day calibration-free CGM products. Under channel advantages, the company's new product release accelerated, and the company's diabetes care solution business revenue increased 37.1% year-on-year in 2023. We believe that CT3, a 14-day calibration-free product, targets the out-of-hospital market and is expected to achieve continuous and rapid release, taking advantage of the company's traditional blood sugar customer base advantages and perfect online channel advantages, etc., and will also drive revenue growth in 2024. Furthermore, on April 7, 2023, the company's self-developed AED product M600 was certified, and new products such as CT3 and AED were released for a long time, compounded by steady growth in traditional business under demand recovery and channel expansion, which is expected to drive long-term growth. (3) Overseas revenue is returning to positive growth, and channel expansion is expected to open up the growth ceiling. In 2023, the company's export revenue was 727 million yuan. The high base was gradually cleared, and overseas growth resumed positive. We believe that unstructured demand has led to an increase in overseas recognition of the company's products, opened up overseas sales channels, and is expected to open up a long-term growth ceiling. (4) The equity incentive plan was released, demonstrating confidence in long-term growth. In September 2023, the company released the “2023 Employee Stock Ownership Plan (Draft) Summary”. The performance assessment target is based on the average net profit for 2021-2022 (about 1,539 billion yuan). The net profit growth rate for 2023-2025 is not less than 30%, 32%, and 52%. The corresponding net profit to mother was 20.01/20.31/339 billion yuan, respectively, up 25.4%, 1.5%, and 15.2% year-on-year, demonstrating confidence in long-term high growth.
Profitability: Net interest rate is expected to increase after 2024
(1) There was a downward trend in the cost rate during the period. In 2023, the company's sales expense ratio was 13.78%, down 0.74 pct year on year; the management expense ratio was 5.16%, down 0.76 pct year on year; R&D expense ratio was 6.33%, down 0.66 pct year on year. Under the scale effect, the overall cost rate of the company may still be declining in 2024-2026 as the company's strategic layout stabilizes and scale effects. (2) The net interest rate reached a record high in 2023, and the overall net interest rate for 2024-2026 may still be trending upward. In 2023, the company's gross profit margin was 51.49%, up 3.4 pcts year on year; the net profit margin was 29.81%, up 7.7pct year on year. Stable strategic layout and profit released the impact of superimposed asset disposal revenue, and the net interest rate in 2023 reached a record high. We believe that under the company's cost control in 2024-2026, gross margin is expected to increase slightly. As the cost ratio changes during the period due to the scale effect, the overall net interest rate may still increase.
Profit forecasting and valuation
Based on the above analysis, we expect the company's total revenue for 2024-2026 to be 85.29/98.92/11.427 billion yuan, respectively, up 6.99%, 15.98%, and 15.52% year-on-year; net profit to mother of 23.24/28.05/3.283 billion yuan, up -2.99%, 20.68%, and 17.05% year-on-year respectively, corresponding to 2024-2026 EPS of 2.32/2.80/3.27 yuan, corresponding to 16 times PE in 2024 to maintain “increase in holdings” ratings.
Risk warning
Risk of increased competition in the industry; risk of changes in international policy/environment; risk of impairment of goodwill; risk of commercialization of new products falling short of expectations; risk of changes in asset disposal benefits.