Core views
The company's 2023 performance was in line with expectations, 2024Q1 profit slightly exceeded expectations, and I am optimistic that CGM will continue to expand. Looking ahead to 2024, the company will continue to use the traditional BGM business as the cornerstone, with CGM products as the second growth curve, to achieve rapid release of core products with its leading position in the domestic market; in overseas markets, US clinical trials are expected to be successfully completed within 2024, and CGM is expected to be gradually rolled out after approval in Europe. In the medium to long term, the company is actively exploring the international market and has now become the fourth largest blood sugar meter company in the world. In the future, the company will continue to promote the registration and product listing of CGM in major markets around the world, and there is plenty of room for long-term growth.
occurrences
Recently, the company released the 2023 Annual Report & 2024 Quarterly Report
According to the company's announcement, the company achieved revenue of 4,059 billion yuan in 2023, up 2.69% year on year; realized net profit of 284 million yuan, a year-on-year decrease of 36.31%; realized net profit deducted from non-mother of 293 million yuan, a year-on-year decrease of 16.79%; and basic earnings per share was 0.51 yuan/share.
With 2024Q1, the company achieved operating income of 1,014 million yuan, an increase of 14.92% over the previous year; realized net profit of 81 million yuan, an increase of 35.51% over the previous year; realized net profit of 78 million yuan without return to mother, an increase of 21.48% over the previous year; and basic earnings per share were about 0.15 yuan/share.
Brief review
Profit slightly exceeded expectations in the first quarter, and blood sugar monitoring products grew steadily
The company's 2023 revenue, net profit attributable to mother, and net profit not attributable to mother were 4,059 million yuan, 284 million yuan, and 293 million yuan, respectively, with year-on-year changes of +2.69% (revenue for 22 and 23 were combined as Trividia's revenue), -36.31%, and -16.79%, respectively. The results were in line with expectations. One reason for the decline in profit side was that the US expanded health insurance coverage for CGM, and BGM sales of the subsidiary Trividia were impacted, resulting in operating losses and impairment of goodwill; second, the company increased its R&D and market investment in CGM. 23Q4 revenue, net profit attributable to mother, and net profit after deducting non-return to mother were 1,023 billion yuan, -034 million yuan, and -47 million yuan respectively, with year-on-year changes of +54.07%, -149.84%, and -184.70%, respectively.
By business, in 2023, the company's blood sugar monitoring system revenue was 2,873 billion yuan, up 6.21% year on year; auxiliary products such as diabetes nutrition and nursing were 279 million yuan, up 0.37% year on year; blood fat detection system was 257 million yuan, up 20.14% year on year; glycated hemoglobin testing system was 196 million yuan, up 15.32% year on year; iPOCT monitoring system was 170 million yuan, up 6.35% year on year; blood pressure monitor was 111 million yuan, year on year decrease of 53.98% year on year; blood pressure monitor was 111 million yuan, year on year increase of 0.37% year on year; blood pressure monitor was 111 million yuan, year on year increase of 0.37% year on year An increase of 4.94%; other business revenue was 56 million yuan, a year-on-year decrease of 15.07%.
By region, the company's domestic revenue in 2023 was 2,348 billion yuan, up 5.34% year on year; US revenue was 1,418 billion yuan, down 1.38% year on year; revenue from other regions was 293 million yuan, up 2.53% year on year.
In 2024Q1, the company's revenue, net profit to mother, and net profit after deduction were RMB 1,014 million, RMB 81 million, and RMB 78 million, respectively, up 14.92%, 35.51%, and 21.48% year-on-year, respectively. The profit side slightly exceeded expectations. It is expected that the BGM business will gradually resume, and the other is that the company's cost and expense control will be effective.
The traditional main business of BGM is developing steadily. CGM is expected to achieve a continuous expansion outlook at home and abroad in 2024, and the company's traditional main business with BGM as the core is expected to develop steadily. By the end of 2023, the company maintained the largest share of blood glucose meters in the domestic retail market. The products covered 3,500 hospitals above level II, more than 220,000 pharmacies and health service terminals, more than 9,000 community hospitals and township hospitals, and more than 50% of people who self-monitor diabetes use the company's products; the company has more than 25 million users worldwide, and its business covers 135 countries and regions. Thanks to brand influence and a stable customer base, the company's traditional main businesses such as BGM are expected to continue to develop steadily.
CGM products are expected to achieve continuous domestic release and successful clinical completion in the US. By the end of 2023, the company's CGM products had obtained registration approval in 7 countries and regions, including China, Indonesia, and the United Kingdom, and were launched domestically at the end of April 2023. The product is equipped with third-generation direct electron transfer technology independently developed by the company. It has the advantages of low potential, no oxygen dependency, few interferers, good stability and high accuracy. The i3 MARD value is 8.71%, and the H3 MARD value reaches 7.45%, which is superior to most products currently on the market. On the domestic side, the CGM market penetration rate is low. With CGM product strength and channel resources and brand influence in the traditional BGM business, the company is expected to achieve continuous and rapid expansion and seize domestic CGM market share; overseas, the company's CGM products have obtained registration certificates in mainstream European countries, and US clinical trials are ongoing, and it is expected that US clinical trials will be successfully completed within 2024.
24Q1 Significant improvement in costs and expenses
The company's gross profit margin in 2023 was 54.39%, up 1.2 pcts year over year (based on adjusted 22-year gross profit margin, mainly due to excluding Trividia's consolidated table). The sales expense ratio was 24.67%, down 2.03 pcts; the management expense ratio was 10.31%, up 3.35 pcts; the R&D expense ratio was 8.78%, down 0.46 pcts year on year; and the financial expense ratio was 1.21%, up 0.77 pcts year on year, mainly due to changes in the exchange rates of subsidiaries Trividia and Xinuo Health. The company's net cash flow from operating activities in 2023 was 735 million yuan, an increase of 7.76% over the previous year.
2024Q1, the company's gross profit margin was 50.73%, up 3.51 pcts year on year, with a significant year-on-year improvement. It is expected that the main reason is that the company has optimized its sales product portfolio.
The sales expense ratio was 24.66%, down 2.44 pcts year on year; the management expense ratio was 6.49%, down 1.64 pcts year on year; the R&D expense ratio was 9.43%, down 0.18 pcts year on year; the financial expense ratio was 0.08%, down 1.24 pcts year on year, mainly due to a decrease in the subsidiary Xinnuo Health's interest expenditure expectations and changes in the Trividia exchange rate.
In the short term, I am optimistic about the rapid release of the company's core products. In the short term, I am optimistic that the company will continue to use BGM's traditional business as the foundation and CGM products as the second growth curve to achieve rapid release of core products with its leading position in the domestic market; in overseas markets, it is expected that US clinical trials will be successfully completed within 2024, and CGM is expected to gradually expand after approval in Europe. In the medium to long term, the company is actively exploring the international market and has now become the fourth largest blood sugar meter company in the world. In the future, the company will continue to promote the registration and product listing of CGM in major markets around the world, and there is plenty of room for long-term growth. We expect the company's revenue in 2024-2026 to be 4.832 billion yuan, 5.509 billion yuan, and 6.234 billion yuan, respectively, up 19%, 14%, and 13% year over year, respectively. The net profit for 2024-2026 is expected to be 447 million yuan, 554 million yuan and 674 million yuan, respectively, up 57%, 24% and 22% year-on-year respectively. Based on the closing price of 2,712 yuan/share on May 28, 2024, PE will be 34, 28, and 23 times, respectively, to maintain “buy” “Enter” rating.
Risk warning
1) Industry competition intensifies risk: The company is in a leading position in the domestic blood glucose meter field. If domestic competition intensifies in the future, the company's market share or profitability may be affected;
2) New product development risks: In recent years, registration policies in China, the European Union and the United States have become stricter. Since the POCT testing instrument industry has characteristics such as high technological content, high comprehensive personnel quality requirements, and long clinical trial cycles, there are generally higher requirements for the company's R&D capabilities and product registration. If the company's new product development progress falls short of expectations, it may adversely affect the company's future growth;
3) Overseas market risk: Changes in overseas economic conditions may affect the performance of overseas subsidiaries, which in turn affects the company's overseas revenue performance; 4) Exchange rate risk: Exchange rate changes may affect the company's overseas revenue performance.