1Q24 results fall short of market expectations

The company announced 1Q24 results: operating income of 331 million yuan, -18.6% year on year; net profit to mother was 101 million yuan, -19.3% year over year. The performance was lower than market expectations. We believe it was mainly due to the delay in the Spring Festival this year, the reduction in sales days, and the remaining dental CBCT price competition.

Development trends

After the Spring Festival, sales were under pressure in the first quarter. The company's revenue declined a lot in 1Q24. We judge that 1Q is the traditional low season for special equipment, the revenue volume is smaller throughout the year, and it is more sensitive to changes. At the same time, the Spring Festival is late this year, the company's actual sales days are shorter, and delivery confirmation is delayed. By product, we estimate that sales of color sorters may have declined less due to lack of overseas holidays; dental CBCT price competition continues, and the unit price has been adjusted greatly over the past year, so the 1Q price is lower than the same period last year.

Due to product structure, gross margin declined year over year and increased month over month. 1Q24's gross profit margin was 51.1%, -2.7ppt year over year and +1.2ppt month-on-month. We judged that the year-on-year decline in gross margin was a decrease in dental CBCT prices, while the month-on-month increase was due to 1Q overseas color sorter sales. The 1Q24 sales/management/R&D/finance expense ratios were +3.52/+2.01/+1.62/-7.92ppt, respectively. Among them, according to the company's quarterly report, the large decrease in financial expenses was mainly due to the increase in the company's exchange earnings. 1Q24's net profit margin was 30.4%, -0.3ppt year over year.

Contract liabilities are high, and cash flow in the first quarter was generally weak. The company's contract debt at the end of 1Q24 was 81.2 million yuan, +64.25% compared to the beginning of the year. The company's quarterly report showed that it was mainly due to an increase in the company's advance payment. We believe this is expected to support the company's subsequent performance release. The company's 1Q24 operating cash flow was -56.56 million yuan. Since 2019, the company's 1Q23 operating cash flow was positive (1 million yuan), and the first quarter's cash flow was generally weak. The company's quarterly report showed that this was mainly due to a decrease in cash received from the company's products sold in the current period, an increase in purchase payments, and an increase in cash payments to employees. We judge that the company's overseas color sorter sales have also been lengthened.

I am optimistic that the competitiveness of the color sorter market will continue to improve, and the dental CBCT boom is recovering. As the company's smart factory continues to be put into use, while the quality of the company's products improves, cost savings can partially benefit downstream, and the competitiveness of the color sorter market can be further improved; at the same time, we determine that in Q2, the dental CBCT industry demand may enter an improvement channel.

Profit forecasting and valuation

The profit forecast for 2024 and 2025 remains unchanged. The current stock price corresponds to the 2024/2025 price-earnings ratio of 18.5x/16.5x. Maintaining an industry rating and a target price of 23.35 yuan, corresponding to 25.0 times the price-earnings ratio of 2024 and 22.2 times the price-earnings ratio of 2025, there is 35.0% upside compared to the current stock price.

risks

Material prices are rising, overseas markets are not expanding smoothly, there is a risk of exchange rate fluctuations, and CBCT competition is intensifying.