Core views
The 23-year performance fell short of expectations. Under a high base, the company's performance was under pressure in the short term, improving month-on-month in 24Q1, and the performance was in line with expectations. In the short term, as the impact of internal and external factors such as high base numbers and increased compliance requirements gradually weakens, the company's basic market in the field of devices and pharmaceuticals remains steady. New cardiovascular products have been approved one after another as expected, and new products such as AI and consumer medicine in the medical service and health management sector are also expected to be approved and released one after another, and the company is expected to return to a steady growth trend. In the medium to long term, the company continues to increase investment in R&D, and a rich R&D pipeline is expected to contribute to long-term growth. As a domestic cardiovascular platform enterprise, the company's advantages in R&D, sales, and brand are expected to continue to be reflected.
occurrences
The company released its 2023 annual report and 2024 quarterly report
On April 19, 2024, Lepu Healthcare released its 2023 annual report and 2024 quarterly report.
In 2023, the company achieved operating income of 7.980 billion yuan, a year-on-year decrease of 24.78%; realized net profit of 1,258 billion yuan, a year-on-year decrease of 42.91%; realized net profit without deduction of 1,123 billion yuan, a year-on-year decrease of 47.60%. EPS is 0.68 yuan/share. Profit distribution plan:
A cash bonus of RMB 3.3141 (tax included) is distributed for every 10 shares. The 24Q1 company achieved revenue of 1.922 billion yuan, a year-on-year decrease of 21.14%; realized net profit of 482 million yuan, a year-on-year decrease of 19.27%; realized net profit without deduction of 456 million yuan, a year-on-year decrease of 18.85%.
EPS is 0.26 yuan/share.
Brief review
Under a high base, 23-year results are under pressure, and 24Q1 results are in line with expectations
In 2023, we achieved operating income of 7.980 billion yuan (-24.78%), realized net profit attributable to mother of 1,258 billion yuan (-42.91%), and realized net profit of 1,123 billion yuan (-47.60%) after deduction. Based on this calculation, Q4 2023 achieved revenue of 1,721 billion yuan (-39.58%), net profit to mother of 95 million yuan (-124.23%), and net profit of non-return to mother of 163 million yuan (-148.21%). The 23-year performance fell short of expectations. The year-on-year decline in revenue was mainly due to the high base due to emergency rapid test kits and PCR instruments in the same period last year; the profit side decline was greater than the revenue side, mainly due to the fact that the company planned various asset impairment preparations totaling 195 million yuan. Excluding the effects of impairment of goodwill and other specific assets and expenses related to equity incentives, net profit not attributable to mother was 1.386 billion yuan, a year-on-year decrease of 37.68%.
24Q1 achieved revenue of 1,922 million yuan (-21.14%), net profit attributable to mother of 482 million yuan (-19.27%), and net profit of non-return to mother of 456 million yuan (-18.85%). The performance was in line with expectations. The year-on-year decline in revenue and profit was mainly due to sales of some emergency products in the same period last year.
The cardiovascular business continued to grow, and the IVD business declined significantly
By sector, the company's medical device business achieved revenue of 3,674 billion yuan in 2023, a year-on-year decrease of 37.50%, mainly due to the fact that sales of emergency rapid test kits and PCR instruments in the same period of the previous year contributed greatly to revenue in the in-vitro diagnosis business. After excluding the in vitro diagnosis business, the segment's revenue increased 6.70% year on year. Among them: revenue from coronary implant intervention increased 2.9% year on year; structural heart disease business increased 29.08% year on year; surgical anesthesia business increased 9.37% year on year; in vitro diagnosis business decreased 77.79% year on year. The pharmaceutical sector achieved revenue of 3,044 billion yuan in 2023, a year-on-year decrease of 11.47%.
Among them: formulation revenue decreased by 11.90% year on year; APIs decreased by 8.60% year on year. The medical services and health management business achieved revenue of 1,262 billion yuan in 2023, a year-on-year decrease of 2.37%. Excluding emergency related revenue, the sector's revenue increased by 6.53% year on year.
By region, domestic revenue in 2023 was 6.953 billion yuan, accounting for 87.13% of total revenue, a year-on-year decrease of 27.04%; foreign revenue was 1,027 billion yuan, accounting for 12.87% of total revenue, a year-on-year decrease of 4.94%.
In the first quarter of 2024, the company's medical device business achieved revenue of 886 million yuan, a year-on-year decrease of 18.69% and a month-on-month increase of 9.22%. Among them: the contract for the innovative cardiovascular implant intervention product group increased by 12.63%, up 35.68% month on month; coronary implant intervention business increased 5.80% year on year, up 22.17% month on month; structural heart disease business increased 66.77% year on year, up 45.45% month on month; surgical anesthesia business increased 10.24% year on year, which was basically the same month on month; in vitro diagnosis business fell 69.53% year on year, leading to a high sales base of 6.30% month on month. The pharmaceutical sector achieved revenue of 793 million yuan, a year-on-year decrease of 15.69% and a month-on-month increase of 26.35%, of which: APIs increased 19.15% year over year; formulations decreased 19.19% year on year. Revenue from medical services and health management was 243 million yuan, down 40.26% year on year. Emergency products led to a high base figure in the same period last year, down 13.73% from month to month.
Looking ahead to Q2 2024 and the whole year, the company is expected to usher in an inflection point in performance in 23 years due to factors such as high base, renewal of collection contracts, and increased industry compliance requirements. However, 24Q1 has begun to improve month-on-month. Looking ahead to Q2, the same period last year was affected by factors such as drug collection and contract renewals. The base figure is relatively low, and revenue and profit are expected to return to a positive growth trajectory in the second quarter. In recent years, the company has successively launched major new products such as FFR, peripheral amputation balloons, coronary sonic balloons, and degradable PFO. As industry compliance requirements increase, the impact on surgical volume gradually weakens, and the cardiovascular equipment sector is expected to maintain rapid growth in the second half of the year. The basic market for devices and pharmaceuticals is expected to maintain steady growth throughout the year, and the medical service and health management sector is expected to continue to gain strength, driven by successive approvals and volumes of AI, dermatology products, OK mirrors, etc.
Coronary shock wave balloons, a major product in the device sector, have been approved. The company that won the bid for the renewal of glycine insulin collection in the pharmaceutical sector maintained a high level of R&D investment. The R&D investment in 2023 was 1,242 billion yuan, accounting for 15.56% of revenue, of which the capitalization amount was 362 million yuan, accounting for 29.17% of R&D investment. R&D expenses were 889 million yuan, accounting for 11.02% of revenue.
In the field of medical devices, the company continues to promote the research and development of innovative products for cardiovascular implant intervention. In September 2023, the biodegradable oval hole unclosed stopper was approved, and it is the first product of its kind in the world. In January 2024, coronary intravascular shock wave catheters/equipment and coronary mastoid balloon dilatation catheters were approved. Shock wave balloons can effectively treat vascular calcification, expand lumen area, and improve vascular compliance, and are expected to become another major product in the cardiovascular field of the company. The application for registration of the degradable atrial septal defect occlusion device was submitted in June 2023; the biodegradable left atrial occlusion device has entered the multi-center clinical trial; TAVR products have submitted a registration application at the end of 2023; the transmitis valve repair system (clip) program will submit a registration application to the NMPA in the first half of 2024.
In the pharmaceutical field, the company actively lays out innovative cardiovascular drugs, especially in the fields of sugar reduction and weight loss. The company has achieved a phase II clinical trial of GLP-1/gcGR/GIP-FC fusion protein MWN101, which it independently developed for type II diabetes and obesity. It is the first GLP-1 GLP-1 product with three targets in China to enter clinical phase II. The biosimilar of duracopeptide injection developed independently by the company is undergoing phase III clinical research; the simeglutide biosimilar has been declared IND for the treatment of diabetic and obese patients; atropine eye drops to treat myopia in children have obtained clinical approval and are undergoing phase I clinical trials.
In the field of medical services and health management, the company attaches importance to the application of artificial intelligence in the medical field. The non-invasive blood sugar meter has submitted an application for registration. It is currently in the supplementary information stage and is expected to be approved for marketing within the year. Next-generation implantable CGM products developed based on artificial intelligence algorithms can be calibrated without calibration. Clinical trials have now been completed, and registration applications are ready to be submitted. The non-invasive continuous blood glucose meter based on big data artificial intelligence is currently in clinical trials and is expected to be submitted for registration in the second half of 2024.
Expense rates have increased, and net interest rates are greatly affected by impairment
The company's gross margin in 2023 was 64.24% (+1.78pp), with a gross profit margin of 66.69% (+7.01pp) for the device sector, 68.69% (-4.78pp) for the pharmaceutical sector, and 46.40% (+0.64pp) for the medical service and health management sector. The change in gross margin is expected to be mainly due to changes in the structure of device products, and the pharmaceutical sector is affected by contract collection renewals. The sales expense ratio is 20.36% (+1.19pp), the management expense ratio is 10.22% (+3.22pp), the R&D expense ratio is 11.02% (+2.00pp), and the financial expense ratio is 1.06% (+0.19pp). The increase in the cost ratio is mainly due to the decrease in expenses being lower than the decline in revenue. The company's net sales margin was 16.20% (-4.96pp), which was greatly affected by asset impairment. Net cash flow from operating activities was 990 million yuan (-64.51%), mainly due to a year-on-year decline in sales payments due to a decline in revenue scale. However, additional labor costs and procurement of raw materials required for emergency product production etc. at the end of the previous year were paid centrally according to the settlement cycle, and the decline in cash expenditure lagged behind. The number of accounts receivable turnover days was 82.60 days, an increase of 22.04 days over the previous year, and the number of inventory turnover days was 287.43 days, an increase of 97.39 days over the previous year.
The company's gross margin for the first quarter of 2024 was 66.89% (-0.06pp), which remained stable. The sales expense ratio was 17.40% (-0.69pp), the management expense ratio was 7.44% (-0.51pp), the R&D expense ratio was 10.27% (+0.85pp), and the financial expense ratio was 0.05% (-2.18pp). The large decrease in financial expense ratio was mainly due to changes in exchange gains and losses during the same period last year. Net profit margin for the first quarter was 25.64% (+0.27pp). Net cash flow from operating activities was $142 million (+205.45%), mainly due to unconventional operating cash flow disturbances in the same period last year. The number of accounts receivable turnover days was 90.91 days, an increase of 21.9 days over the previous year, and the number of inventory turnover days was 318.70 days, an increase of 57.07 days over the previous year.
Short-term devices and pharmaceuticals are expected to resume a steady growth trend. In the short term, we are optimistic about the growth potential of the company's platform-based layout. As the influence of internal and external factors such as a high base and increased compliance requirements gradually weakens, the company's basic market in the field of devices and pharmaceuticals remains stable. New cardiovascular products have been approved one after another as expected, and new products such as AI and consumer medicine in the medical service and health management sector are also expected to be approved and released one after another. The company is expected to return to a steady growth trend. In the medium to long term, the company continues to increase investment in R&D, and a rich R&D pipeline is expected to contribute to long-term growth. As a domestic cardiovascular platform enterprise, the company's advantages in R&D, sales, and brand are expected to continue to be reflected. The estimated net profit for 2024-2026 is 1,954 billion yuan, 22.71 billion yuan, and 2,647 billion yuan, respectively, with growth rates of 55.3%, 16.2%, and 16.5%, respectively. Based on the closing price on April 30, 2024 (14.75 yuan), the 2024-2026 PE was 14, 12, and 10 times, respectively. Maintain a buy rating.
Risk warning
1) The price reduction in centralized volume procurement exceeds expectations: In the future, it is not ruled out that the company's existing commercial product categories will be included in the centralized volume procurement policy. If the price reduction of related products exceeds market expectations, it will affect the company's profitability. 2) Marketing falls short of expectations: If the current commercialized product market expansion progresses later than market expectations, the performance growth of related companies may be affected to a certain extent. 3) Progress in the research pipeline falls short of expectations: The company has a broad product layout and product layout in the fields of innovative medical devices, consumer medicine, etc. The development progress of some products under development may fall short of expectations, which adversely affects the company's subsequent revenue and profit growth. 4) The impact of increased compliance requirements in the pharmaceutical industry exceeds expectations: Increased compliance requirements in the pharmaceutical industry may continue to have an impact on the amount of surgery, drug usage, consumables, etc.