Revenue was affected by the collection and epidemic prevention product base, and net profit to mother fell 27.6% year over year. Considering the impact of the accounting restatement, revenue of 13.229 billion yuan was achieved in 2023, down 3.8% year on year; net profit of 2.02 billion yuan was achieved, down 27.6% year on year. The company's performance was negatively affected by various aspects. Orthopedic products were adversely affected by product factory prices due to volume procurement execution; general consumables and pharmaceutical packaging were all affected by the high base of COVID-related demand during the same period (orders for epidemic prevention materials and COVID-19 vaccine packaging), and prices for clinical nursing products were reduced in collection in various regions, and pharmaceutical packaging products and customer structures were adjusted. The rise in US dollar interest rates led to an increase in financing costs, which also had a negative impact on profits.
The medical device product structure has been continuously optimized, and the orthopedic sector has experienced collection pains. The medical device business achieved revenue of about 6.728 billion yuan (+2.4%) in 2023. The sales base for epidemic prevention materials was high during the same period last year, which affected the revenue growth rate. Prices for different products have been reduced in volume purchases in various regions, but the sales growth rate of major products has continued to exceed 20%, and the market share has increased rapidly. The revenue of the pharmaceutical packaging business was approximately RMB 2,024 million (-3.9%). Due to the high base of COVID-19 vaccine packaging orders, shipments of prefilled syringes declined year-on-year, and the average sales price also declined due to adjustments in product and customer structure. The orthopedic business revenue was 1,271 billion yuan (-37.6%), mainly due to a drop in the ex-factory price of products due to procurement execution.
The number of terminal surgeries for the company's main products increased by more than 20%, increasing its market share and industry position. Revenue from the intervention business was 2.165 billion yuan (+11.7%). Elang China is affected by volume purchases and one-time shortages. The growth rate is slower than the overall rate, but the long-term growth trend has not changed.
The gross margin was affected by the reduction in collection prices, and the cash flow remained healthy and high quality. The company's gross margin in 2023 was 50.2% (-2.0pp year on year), mainly price reductions for some products and changes in product structure. The sales expense ratio was 19.5% (+1.7pp year over year), and the management expense ratio was 9.4% (+1.2pp year over year). R&D investment continued to increase, with R&D expenditure reaching 593 million, an increase of 6.54% over the previous year. Financing costs were greatly affected by the US dollar interest rate hike, reaching 273 million in 2023, an increase of 42.6% year on year. Multiple factors led to a net interest rate drop to 15.6% (-5.7pp year on year). Net operating cash flow was 2,799 billion yuan, and the cash content of net profit to mother exceeded 140%; free cash flow reached 2.2 billion yuan, an increase of 34% over the previous year, the highest in history.
Investment advice: Considering the impact of mining, the 2024-25 profit forecast was lowered, and the 2026 profit forecast was added. The estimated net profit for 2024-26 is 22.6/25.7/2.89 billion (the original 30.3/3.49 billion in 2024-25), with a year-on-year growth rate of 13.0%/13.6%/12.5%; diluted EPS = 0.49/0.56/0.63 yuan, corresponding to the current stock price PE = 10/9/8x. Weigao has established multi-dimensional barriers of brand image, quality control, scale effect, and cost advantage. We are optimistic about Weigao's continued growth and leading position in the industry, and maintain a “buy” rating.
Risk warning: the risk of a sharp price reduction for products purchased in volume; the growth in production capacity and order volume of prefilled syringes falls short of expectations; risk of new business expansion falling short of expectations.