Introduction to this report:
China Procurement's contract renewal results were positive, and the in-bid business is expected to usher in a strong recovery and maintain an increase in holdings rating.
Summary:
Maintain an increase in holdings rating. The company's selection results in the renewal of the joint procurement contract were positive. The target business is expected to usher in a strong recovery, maintaining the 2024-2026 predicted EPS of 0.23/0.33/0.44 yuan, and maintaining an increase in holdings rating.
Overcoming the adverse effects of low prices in the first round of collection, contract renewals were positive. In the first round of joint national procurement launched in 2021, the company, as an industry leader, adopted a bid guarantee strategy. The winning bid price was relatively low, leaving less profit margin for dealers, and was adversely affected by low price factors in competition with other manufacturers. In this round of collection and contract renewal reports, the company actively overcame adverse effects. The procurement demand share for the entire product line reached 15%, a slight increase from the first national procurement in 2021. Among them, the key product system Tao's hip share remained number one in the industry, Tao's hip share rose from fourth in the industry to second place in the industry, and the knee share maintained the second position in the industry. The overall reporting situation was positive, providing a solid foundation for subsequent agreement volume distribution.
The selection results are excellent, and it is expected that they will fully enjoy the competitive advantage in the new round of collection cycle. On May 21, 2024, the joint procurement contract was renewed and the bid was opened. The winning results are expected to be implemented in all provinces starting in June. The company Tao vs. Tao's hip/gold's hip/gold's hip/knee joint were selected in Rule 1 based on the 3rd, 3rd, 4th, and 2nd rankings, respectively. They can share a large proportion of their own procurement requirements, and they can all participate in the distribution of the remaining amount. In terms of price, the list prices for the three main product systems of Tao Duang/Tao Duoju/Knee Joint rose 15%/12%/16% respectively from the first round of collection. The company and dealers are expected to share the dividends brought about by the price increase. Since the average price difference of this collection dropped sharply from 2.8 times that of the first round of collection to 1.1 times, the profit margin for dealers is close to that of high-priced and low-priced products, and the use of low-priced products selected in the top ranking is more supported by rules, so it is expected that products with slightly lower prices and higher rankings during this round of collection will enjoy a greater competitive advantage. As a domestic joint leader with a reputation in the industry, the company is leading in product quality, performance and supporting services, and is ranked high in this collection. It is expected to get rid of the negative effects caused by low prices in the first round of collection, fully enjoy a competitive advantage during the new round of collection, and the in-standard business is expected to usher in a strong recovery.
Catalysts: execution of collection results, performance verification
Risk warning: The increase in the number of surgeries in the industry falls short of expectations