Incident: The company released its report for the first quarter of 2024. In the first quarter of 2024, it achieved operating income of 479 million yuan (+1.33%), net profit to mother of 100 million yuan (-27.65%), deducted non-net profit of 92 million yuan (-26.55%), and operating cash flow of -29 million yuan (-159.07%).

Short-term factors affected apparent performance, putting pressure on revenue and profit in the first quarter. The 2024Q1 company saw a slight increase on the revenue side and a marked decline on the profit side. On the one hand, it was mainly affected by the higher base during the same period (factors such as the recovery in hospital diagnosis and treatment volume of 2023Q1 drove the company to achieve better sales performance). On the other hand, it is expected that some bidding activities in 2024Q1 will still be affected by industry restructuring, and equipment procurement will be delayed. In addition, 2024Q1's gross margin increased steadily (69.40%, +0.80pct), which is expected to be driven mainly by the optimization of the revenue structure; the cost ratio of the 2024Q1 company increased during the period, with sales expenses ratio of 25.64% (+3.30pct), management expenses ratio 7.21% (+1.89pct), and R&D expenses ratio 21.20% (+4.29pct), which in turn reduced the net interest rate level by 8.37pct to 20.90%. With the gradual advancement of policies related to equipment replacement, it is expected that the demand for medical equipment tenders previously postponed by the hospital will be released one after another. Combined with the continuous strengthening of the company's marketing management and the gradual expansion of new middle and high-end products, we are optimistic that the company's performance will stabilize and resume good growth.

A multi-production line development pattern was initially formed, and technological innovation consolidated product competitiveness. Based on the company's continuous cultivation in the field of ultrasound and endoscopy, and the entry and continuous growth of the surgical and cardiovascular business, the company's diversified development pattern is gradually taking shape: 1) Ultrasound: products have covered high/medium/low level multi-level user needs, and are used clinically in the fields of whole body, obstetrics and gynecology, to achieve independent research and development of linear, convex, phased array, volume, transesophageal, intraoperative, laparoscopic and other types of probes, and has become the top ten head ultrasound product supplier in the world and the fourth largest domestic market share; 2) Endoscopy: The mirror sector ranked third in market share (after Oss) Bahrain and Fuji), and in view of the comprehensive competitive strength of the product, its market share is still expected to increase; 3) Minimally invasive surgery: the product range continues to be rich (single-chip/three-chip/four-chip 4K ultra-high-definition endoscopy systems have been launched), and the series combination potential is impressive, which is expected to achieve rapid development and occupy a leading position; 4) Cardiovascular intervention: intravascular ultrasound diagnostic equipment and supporting products successfully won the bid for the domestic inter-provincial alliance collection project, creating a good foundation for the company to expand in this business field in the future.

Investment advice: Kaisei Medical is a domestic ultrasound and endoscopic lens company. The middle and high-end production lines continue to be rich, and overseas business expansion is progressing in an orderly manner. Considering that the slowdown in the pace of bidding affects the short-term business pace, we lowered the company's 2024-2026 net profit forecast to 5.46/6.97/883 million yuan, up 20.20%, 27.53%, and 26.75% year-on-year. EPS was 1.27, 1.62, and 2.05 yuan respectively. The current stock price corresponding to 2024-2026 PE is 33/26/20 times, maintaining the “recommended” rating.

Risk warning: the risk of new product development and launch falling short of expectations, the risk of an uncertain overseas trade environment, and the risk of increased industry competition.