Matters:

The company released the 2023 report and the 2024 quarterly report. In 2023, the company achieved operating income of 7.972 billion yuan, and realized net profit of 2,396 billion yuan, +50.21% year on year; in the first quarter of 2024, the company achieved operating income of 2,331 billion yuan, -17.44% year over year, and realized net profit of 659 million yuan, or -7.58% year on year.

Ping An's point of view:

Revenue growth was in line with expectations and gradually entered a steady growth phase. The company comprehensively lays out the field of household medical devices. By business segment, the company's respiratory business segment achieved +50.55% year-on-year ratio in 2023. Among them, the business scale of oxygen concentrator products increased by nearly 60% year on year, and sales of nebulizer products increased by more than 60% year on year, all maintaining a rapid growth trend. The company achieved rapid growth with excellent product quality and user experience, excellent brand influence, efficient productivity and excellent service guarantee; the revenue scale of the diabetes care sector was +37.12% year-on-year, with new products not being calibrated for 14 days The CGM product registration certificate was successfully implemented and successfully introduced to the market. The market expansion of the company's blood sugar-related business continued to deepen, and the market position of related products continued to improve, and the market share of related products and the size of the customer base achieved significant progress; the household electronic testing and in vitro diagnosis business increased by +10.15%, of which the revenue of electronic blood pressure monitor products grew by more than 20% year on year, continuing to strengthen its leading position in the corresponding market; the emergency sector business achieved a year-on-year ratio of +8.04%. After the self-developed AED product M600 was certified, the infection control business continued to expand at home and abroad; the infection control business continued to expand in the prevention and control of the epidemic Demand declined due to a high base, and rehabilitation devices declined slightly year-on-year, but the company's product market position is stable, and it is expected to enter a stage of steady growth this year. There was a decline in Q1 revenue, mainly due to strong demand for 23Q1 epidemic prevention and control liberalization, and the base figure was high. The growth was rapid month-on-month, and growth can be expected throughout the year.

The performance is good, and the quality of operations continues to improve. The company achieved a gross profit margin of 51.49% in 2023, an increase of 3.36 percentage points compared to 2022. It mainly benefited from product structure optimization, effective cost management methods and an increasingly mature supply chain system, continuously reducing costs and increasing efficiency, continuously promoting lean production, and continuously improving market competitiveness. In 2023, the company invested 504 million yuan in R&D expenses (+1.61% YoY), and the R&D cost rate was 6.33% (-0.66bp). The company continued to increase R&D investment, and attached great importance to R&D efficiency and resource utilization. The cost rate was reduced; management expenses of 411 million yuan, -2.22% YoY, and management efficiency continued to improve; sales expenses of 1,098 million yuan (+6.48% YoY), and continued to build a professional marketing system, covering various channels such as distribution, terminals and export sales. Direct management capabilities continued to increase. The online sales volume of major products is in the leading position in the industry, contributing to long-term development. The company's gross margin is rising steadily, and the trend of cost-side changes continues to improve. The company's operating efficiency continues to improve, and distribution quality continues to improve. The company's net interest rate for the full year of 2023 was 29.81%, an increase of 7.66 percentage points over the previous year, and the 2024Q1 net interest rate was 29.63%, which continued to be at a high level.

Focus on the main business, continue to expand, and develop together at home and abroad. As a leading household medical device company, the company focuses on cornerstone businesses such as blood pressure monitoring, temperature testing, traditional Chinese medicine equipment, and surgical instruments. On this basis, the strategy changed from “defense” to “attack”, from mature and self-production to growth business, focusing on the continuous expansion of the three core tracks of breathing and oxygen production, blood sugar and POCT, and disinfection sensory control, and actively incubating high-potential businesses such as first aid, ophthalmology, and intelligent rehabilitation. The three core business tracks have large market space and low penetration rate. The company will continue to launch new products through self-development and mergers and acquisitions on the core circuit, use channel advantages to continuously increase market share, and promote continuous optimization of the company's product structure and vigorous business scale development. In addition, the company continues to promote market expansion in key overseas countries, cultivate sales teams with an international perspective and territorial ability, better serve overseas customers, and continuously open up room for growth. The long-term development space is worth looking forward to.

Maintain a “Highly Recommended” rating. As a leading household medical device company, the company is in a leading position in the market in many fields, and continues to expand new tracks and fields, and long-term development can be expected. According to the 2023 sales situation and market changes, the 2024-2026 EPS forecast was adjusted to 2.37, 2.78, and 3.18 yuan (the original 2024-2025 forecast was 2.02 and 2.38 yuan), maintaining the “Highly Recommended” rating.

Risk warning: 1) New business incubation and expansion risks; 2) sales of new products falling short of expectations; 3) risk of product price reduction; 4) risks such as increased competition in the industry.