Incident: The company released its 2023 annual report and the report for the first quarter of 2024. In 2023, the company achieved operating income of 7.972 billion yuan, a year-on-year increase of 12.25%, net profit of 2,396 billion yuan, an increase of 50.21% year-on-year, after deducting non-net profit of 1,836 billion yuan, an increase of 46.79% year-on-year. In the first quarter of 2024, the company achieved operating income of 2,231 million yuan, a year-on-year decrease of 17.44%, realized net profit of 659 million yuan, a year-on-year decrease of 7.58%, and realized deducted non-net profit of 551 million yuan, a year-on-year decrease of 21.69%.

On a quarterly basis, in the fourth quarter of 2023, the company achieved revenue of 1,309 million yuan, a year-on-year decrease of 34.08%, and net profit to mother of 205 million yuan, a year-on-year decrease of 55.36%. After deducting non-net profit of 165 million yuan, a year-on-year decrease of 43.19%. The company's single-quarter performance declined, mainly related to the high base of the respiratory oxygen sector during the same period in 2022/Q4. At the same time, some asset and credit impairment at the end of the year also put some pressure on profits. In the first quarter of 2024, the company achieved operating income of 2,231 billion yuan, a year-on-year decrease of 17.44%, achieved net profit of 6.59%, a year-on-year decrease of 7.58%, and realized deducted non-net profit of 551 million yuan, a year-on-year decrease of 21.69%. It still performed relatively steadily under the high base of the same period, with a good month-on-month growth trend.

With multiple contributions from production capacity, brands, and services, the respiratory treatment business continued to increase by 50+%. In 2023, the respiratory treatment business segment achieved revenue of 3.371 billion yuan, an increase of 50.55% over the previous year. Among them, oxygen concentrator products increased by nearly 60% year on year, ventilator products grew by more than 30%, and nebulizer products increased by more than 60% year on year. With excellent product quality, excellent brand influence and excellent service guarantee, the company's respiratory treatment business quickly responded to industry opportunities and achieved high performance. Domestic residents' awareness of health management increased rapidly after the epidemic, and the penetration rate of conventional products such as household breathing and oxygen production is expected to continue to increase. At the same time, the company's respiratory treatment business is expected to maintain a rapid growth trend in the future.

CGM product upgrades combined channel adjustments to accelerate the growth of the diabetes care business. In 2023, the company's diabetes care business achieved revenue of 726 million yuan, an increase of 37.12% over the previous year. In 2023, the company successfully launched CT3, a 14-day calibration-free CGM product, with outstanding comprehensive performance and rapid promotion in the in-hospital and in-hospital markets. At the same time, the company actively adjusted the team structure and organizational structure for the in-hospital and in-hospital markets to accelerate the talent gradient construction of relevant teams to adapt to the rapidly developing business environment, and customer loyalty continued to increase. The diabetes care business is expected to continue to rise in the future.

Product performance has been iteratively upgraded, and household and first aid products have accelerated performance. In 2023, household electronic testing and in vitro diagnosis achieved revenue of 1,674 billion yuan, with a year-on-year increase of 10.05%, of which electronic blood pressure monitor products increased by more than 20%. The company strengthened R&D efforts around key components of household electronic products, iterated core technology, continuously improved product competitiveness, and maintained a good growth rate. In the field of first aid, the company's related business revenue in 2023 was 163 million yuan, an increase of 8.03% over the previous year. Driven by the company's self-developed AED product M600, the company achieved healthy growth.

The rehabilitation cornerstone sector has performed steadily, and the sensory control business is expected to recover steadily under a high base. In 2023, the company achieved revenue of 1,228 billion yuan, a year-on-year decrease of 12.82%. Among them, major products such as wheelchairs, acupuncture and moxibustion acupuncture are still growing and are expected to achieve continuous and stable performance contributions in the future; in 2023, the company's infection control business achieved revenue of 756 million yuan, a year-on-year decrease of 36.15%, mainly related to the high base for the same period in 2022. The company continues to develop new specialty tracks in the field of sensory control, continuously enriching the civilian product business layout, and is expected to gradually recover steadily in the future.

Profit forecast and investment advice: According to financial data, we are adjusting profit forecasts. It is expected that the proportion of high-margin products will continue to rise, driven by products such as respiratory oxygen production, and that the share of high-margin products will continue to rise. At the same time, the tightening of regulatory policies may cause short-term disturbances. The company is expected to achieve revenue of 87.59, 101.11, and 11.662 billion yuan in 2024-2026, up 10%, 15% year-on-year (adjusted to 90.36 billion yuan and 10.460 billion yuan in the previous 24-25 years), and is expected to achieve net profit attributable to the parent company in 2024-2026 20.69, 2,405, and 2,799 billion yuan, year-on-year increases of -14%, 16%, and 16% (before adjustment of 24.03 billion yuan and 2,751 billion yuan in 24-25 years). The company's current stock price corresponds to 18, 15, and 13 times PE in 2024-2026. Considering the accelerated recovery of the company's conventional products and strong growth in emerging businesses, the rapid increase in domestic and foreign brand power after the COVID-19 pandemic, maintaining a “buy” rating.

Risk warning: The risk of product promotion falling short of expectations, the risk of policy changes, and the risk that the public information used in the research report may be delayed or not updated in a timely manner.