A leading domestic blood sugar testing company, deeply involved in the industry for 20 years. Sannuo Biotech focuses on blood sugar monitoring. After more than 20 years of development, the company has formed a rapid test product system for chronic diseases with blood sugar testing as the core, covering different application scenarios.
The market space for blood sugar testing is vast, and technological iteration brings new opportunities.
1) There is plenty of room for improvement in China's blood sugar testing market: China's diabetic patient base continues to expand. According to Weitai Medical's prospectus, China's diabetes testing market is expected to reach 13.8 billion yuan in 2023, but the blood sugar meter penetration rate and blood sugar monitoring frequency for diabetics in China are far lower than the average in developed countries and the world. With the promotion of national policies and the increase in people's health awareness, the size of China's blood sugar testing market will continue to grow.
2) Technological iteration brings huge opportunities: CGM (continuous blood sugar monitoring) has significant advantages over BGM (traditional blood time point single blood sugar monitoring), and technological iteration brings huge market opportunities. Dekang achieved a market capitalization of 50 billion US dollars with only CGM products. According to Weitai Healthcare's prospectus, the global CGM market will grow from US$5.7 billion in 2020 to US$36.5 billion in 2030. In the future, CGM is also expected to expand from the medical field to the consumer sector, and the potential market will expand further.
3) The positive impact of domestic CGM's internal volume: Domestic and overseas CGM markets have huge room for growth. The fierce competition of domestic CGM is conducive to speeding up the penetration rate of domestic CGM and improving the product power of domestic CGM, and pushes enterprises to turn their attention to overseas markets and cultivate domestic brands with global competitiveness.
The leading BGM business is developing steadily and is expected to unleash new vitality at the CGM circuit.
1) Steady development of the traditional main business: The company is the leading domestic BGM for blood sugar testing, and the CAGR of blood sugar testing revenue reached 17.7% between 2014 and 2022. Currently, there is still a big gap in the domestic blood sugar monitoring penetration rate compared to developed countries, and it is expected that the company's BGM business will continue to grow steadily. Furthermore, the company expanded from blood sugar testing to multi-indicator POCT (instant testing), opening up room for growth.
2) Actively embrace changes in the industry, which is expected to unleash new vitality on the CGM circuit: ① The advantages of the brand channel and production system formed by the company in BGM are expected to be transmitted to CGM, laying a solid foundation for it to compete on the new track. The company i3 sold more than 100,000 boxes during the 2023 Double Eleven period, ranking first in domestic CGM. ② The company attaches importance to R&D investment and launched the world's first third-generation CGM product. The product has excellent performance, and the iterative upgrade version has begun to be registered with the NMPA. ③ The company's CGM products have been approved in the European Union, sales began in 24, and certification with the FDA is being promoted in an orderly manner. European and American market registration and channel construction are gradually being implemented, and overseas sales are imminent.
Investment advice: The company is a domestic BGM leader and actively embraces the industry changes brought about by CGM. On the one hand, the domestic BGM business is expected to maintain steady growth as the domestic blood sugar test penetration rate increases; on the other hand, the CGM business can seize domestic and foreign markets based on the brand channels and manufacturing capabilities formed by the company's BGM. We expect the company's net profit to be RMB 4.4, 540, and 650 million yuan respectively for 2024-2026, up 54.9%, 22.1%, and 21.6% year-on-year, and corresponding EPS of 0.78, 0.95, and 1.16 yuan respectively. Considering the company's leading domestic BGM position and the superior growth of the CGM circuit, we gave the company a 41-fold valuation in 2024, corresponding to a target price of about 32 yuan. Covered for the first time, giving a “Recommended” rating.
Risk warning: 1. Competition in the CGM industry intensifies; 2. CGM's overseas launch falls short of expectations; 3. Product iteration and FDA registration progress fall short of expectations; 4. Risk of industry technology iteration impacting traditional BGM business; 5. Risk of impairment of goodwill.