Core views

The company's 2023 performance was in line with expectations. Revenue growth across all product lines was high, and 2024Q1 profit growth exceeded expectations. Looking ahead to 2024, the company's revenue and profit are expected to grow steadily. In the short term, the company did not win the bid for hemostasis collection led by Hebei. According to the company's announcement, the company's sales revenue corresponding to hemostasis coverage accounted for 5.7-6.3% of domestic revenue in 2023, accounting for a relatively low proportion. This year, the company will focus on strengthening the promotion of new products and expanding overseas markets. New products such as replaceable and retractable hemostatic clips, bipolar electric knives, and third-generation water pumps have strong market competitiveness and are expected to contribute to increased performance. In overseas markets, the company will continue to consolidate the European market and North American market, while vigorously expanding the South American and Asia-Pacific markets, and continuously developing new customers. Overseas ODM orders and own-brand products are expected to achieve high growth.

occurrences

On April 22, 2024, the company released its 2023 annual report and 2024 quarterly report. The company's 2023 revenue was 509 million yuan (+37%), net profit attributable to mother was 217 million yuan (+50%), net profit after deducting non-return to mother was 212 million yuan (+48%), and basic earnings per share was 4.19 yuan/share. The 2023 profit distribution plan is to distribute a cash dividend of 14.5 yuan (tax included) to all shareholders for every 10 shares, and distribute 4 bonus shares (tax included).

In the first quarter of 2024, the company's revenue, net profit attributable to mother, and net profit not attributable to mother were $1.12, 0.53, and 0.48 million yuan, respectively, up 23%, 54%, and 41% year-on-year, respectively. The basic earnings per share were 0.91 yuan/share.

Brief review

All product lines achieved high growth in 2023. 2024Q1 profit growth exceeded expectations. The company's 2023 revenue was 509 million yuan (+37%), net profit to mother was 217 million yuan (+50%), and net profit after deducting non-return to mother was 212 million yuan (+48%). It completed the equity incentive performance assessment target, and the performance was in line with expectations. Performance achieved high growth, mainly due to the company increasing domestic market expansion efforts, continuing to increase the number of terminal hospitals covered and market share, while actively expanding overseas markets. The number of newly developed customers continued to increase, driving high overseas revenue growth. 2023Q4 revenue, net profit attributable to mother, and net profit not attributable to mother were 1.63 million yuan, 0.74 million yuan, and 72 million yuan, respectively, up 50%, 54%, and 71% year-on-year, respectively. 2024Q1 revenue, net profit attributable to mother, and net profit not attributable to mother were 1.12, 0.53 million yuan, and 48 million yuan, respectively, up 23%, 54%, and 41% year-on-year respectively. Profit growth exceeded expectations, and profit growth was higher than revenue growth. Mainly due to the increase in the company's interest income, the financial expenses ratio dropped sharply year on year, and the net interest rate increased significantly to 47.31% from 38.72% in the same period last year.

By product, revenue from GI products (including hemostasis clips and biopsies) in 2023 was 336 million yuan (+34%), revenue from EMR/ESD products was 105 million yuan (+51%), revenue from ERCP products was 38 million yuan (+29%), and revenue from diagnostic and treatment instrument products was 28 million yuan (+39%).

By region, domestic revenue in 2023 was 261 million yuan (+38%), and overseas revenue was 245 million yuan (+37%). By sales model, domestic and overseas distribution revenue in 2023 was 317 million yuan (+44%), accounting for 63% of main business revenue; ODM OEM sales revenue was 190 million yuan (+27%), accounting for 37% of main business revenue.

The number of domestic terminal hospitals covered by the company continues to increase, and the number of new overseas customers is growing steadily. In terms of the domestic market, by the end of 2023, the number of domestic terminal hospitals covered by the company exceeded 2,300, of which the coverage rate of tertiary hospitals reached 44%. In terms of overseas markets, the number of new customers of the company increased by 35% year-on-year in 2023, while introducing 2 high-quality major customers. With the launch of the European branch, overseas market expansion is expected to accelerate.

Looking ahead to the second quarter and the whole year, new product promotion and overseas market expansion are expected to drive the company's performance to achieve steady growth. The outlook is for the whole year, and the company's revenue and profit are expected to grow steadily. In the short term, the company did not win the bid for the Hebei-led hemostasis collection in the first quarter. According to the company's announcement, the sales revenue corresponding to the company's hemostasis collection volume in this collection was between 15 and 16.5 million yuan, accounting for 5.7-6.3% of the company's domestic revenue in 2023, accounting for a relatively low proportion. In addition, the company will focus on strengthening the promotion of new products and overseas market expansion this year. In the domestic market, driven by continuous optimization and improvement of product performance and continuous channel construction, the company is expected to continue to increase its market share with its cost-effective advantages. At the same time, new products such as repeatable opening/closing hemostatic clips, bipolar electric knives, and third-generation water pumps have strong market competitiveness and are expected to contribute to increased performance. In overseas markets, the company will continue to consolidate the European market and North American market, while vigorously expanding the South American and Asia-Pacific markets, and continuously developing new customers. Overseas ODM orders and own-brand products are expected to achieve high growth.

Profitability has been further improved, and R&D investment continues to increase

The company's gross margin in 2023 was 70.87%, up 2.75 percentage points year on year. Among them, the gross margin of GI products and EMR/ESD products increased 4.13 percentage points and 4.01 percentage points year on year, respectively. It is expected mainly due to the company's increased degree of production automation and continuous optimization of supply chain management. The sales expense ratio was 9.77%, up 0.53 percentage points year on year; the management expense ratio was 8.98%, up 0.27 percentage points year on year; financial expense ratio was -5.44%, down 1.81 percentage points year on year, mainly due to increased interest income; R&D expenses were 8.11%, down 0.37 percentage points year on year, and R&D expenses were 41 million yuan (+31%). Net operating cash flow in 2023 was 221 million yuan, an increase of 42% over the previous year, mainly due to the rapid growth in the company's revenue and an increase in cash received from sales of products. The number of payable turnaround days was 104.23 days, an increase of 2.64 days over the previous year. The number of inventory turnover days was 103.69 days, a year-on-year decrease of 15.67 days, and inventory turnover efficiency was further improved. Other financial indicators are generally normal.

In the first quarter of 2024, the company's gross margin was 71.78%, up 1.28 percentage points year on year, mainly due to increased production automation and continuous optimization of supply chain management; sales expenses ratio was 11.37%, up 1.61 percentage points year on year; management expenses ratio was 11.20%, up 2.31 percentage points year on year; financial expense ratio was -11.44%, down 11.33 percentage points year on year, mainly due to increased interest income; R&D expenses rate was 10.30%, up 2.58 percentage points year on year, mainly due to the company's increase in interest income This is due to the continuous increase in R&D investment, and the increase in R&D personnel remuneration and R&D materials. Net operating cash flow was $0.14 billion, up 33% year over year, mainly due to the increase in the company's operating income, which led to an increase in cash received from the sale of products and an increase in interest income.

It is one of the leading domestic endoscopic diagnosis and treatment consumables. I am optimistic about the company's long-term development space. The company is one of the leading domestic endoscopic diagnosis and treatment consumables. The product segment layout is complete and rich, and there is broad room for future growth. In the short to medium term, the company's products are continuously optimized and improved, and the product pipeline continues to be rich. It is expected that it will continue to increase its market share with its high cost performance advantages and the differentiated competitive advantages of new products such as bipolar electric knives. At the same time, the company actively lays out international business, and is expected to further open up space for overseas growth through product innovation and market development. In the long run, the demand for early screening for gastrointestinal cancer is huge, and the penetration rate is expected to continue to increase. The company is expected to enjoy the dividends of the long-term boom in domestic demand for early cancer screening.

We expect the company's revenue for 2024-2026 to be 654, 834, and 1,065 million yuan, respectively, up 29%, 28% year-on-year; net profit to mother will be 2.69, 3.41, and 435 million yuan, respectively, up 24%, 27%, and 28% year-on-year, respectively. Maintain a “buy” rating.

Risk warning

1) Risk of market competition: In the traditional endoscopic diagnosis and treatment consumables industry, more and more domestic companies have registered and approved products, and there is a risk that competition in the industry will intensify.

2) Risks of changes in industry policies: risk of not being able to sell in specific regions due to loss of procurement tenders for hemostasis; risk of price reduction of products after collection; risk of large-scale collection of other endoscopic diagnosis and treatment consumables across the country; risk of difficulties in product promotion and admission due to increased compliance requirements in the medical industry; risk of not being able to sell locally due to policy changes in export countries. 3) Risk of trade friction and exchange rate fluctuations: EU member states and North America are the company's main export markets. International trade frictions may adversely affect the company's export business; the company's export business is mainly settled in US dollars, and exchange gains and losses may adversely affect the company's business performance. 4) Risk of intellectual property disclosure: If the company's independent intellectual property rights are not effectively protected and infringed, or intellectual property disputes with competitors may adversely affect the company's operations. 5) Risk of brain loss: If the company is unable to establish a long-term talent training mechanism, it may face the risk that technical bottlenecks cannot be broken through.