Key points of investment
Yuyue Medical is a leading domestic household medical device company. 2024Q1's ROE (ttm) reached 18.8%, ranking 2nd in the medical equipment sector, and its high net interest rate and continuously optimized debt structure made us continue to be optimistic about its high ROE stability. The analysis found that the company's products continue to be high-end to increase the average product price and accelerate overseas channel expansion, and the revenue and profit CAGR is expected to grow high in 2024-2026. Among them, overseas expansion is one of the company's important growth drivers. It is also an important strategy for the company to improve its development ceiling and growth sustainability. We analyze the company's overseas strategies and overall growth drivers by analyzing the company's overseas development stage, overseas product layout, and promotion model.
Analysis of stages of overseas business development?
Overseas revenue resumed positive growth in 2023, and channel expansion is expected to open up the growth ceiling. In 2020, global public health events brought about a sharp increase in demand for products such as respiratory oxygen production. Relying on good production capacity layout and coordination capabilities, the company undertook a large number of overseas orders and opened up overseas markets. Overseas revenue in 2020 was 1.88 billion yuan, an increase of 136% over the previous year, and the revenue share also increased to 27.9%. Overseas channels were gradually opened up, and brand influence increased.
In 2021-2022, with the gradual normalization of demand and the restoration of domestic growth, the company's overseas revenue declined year by year; in 2023, the company's export revenue was 727 million yuan (accounting for 9% of revenue), the high base was gradually cleared, and overseas business revenue resumed positive growth. We believe that the company's overseas revenue share is relatively low, and overseas promotion is still in the early stages, but as mentioned in the company's 2023 annual report, “through overseas territorial team building, the overseas team continues to expand its marketing capabilities through international medical and health events in recent years”. Therefore, we believe that the company has more room for overseas business expansion. Unstructured demand has led to an increase in overseas recognition of the company's products and open up overseas sales channels, which is expected to open up a long-term growth ceiling.
What products have been deployed overseas?
Focus on the core business and expand the space for new products. The company focuses on the three core tracks of respiratory oxygen production, blood sugar testing, and disinfection sensing control, and is based on household electronics and in vitro testing products. In terms of products, the company's various electronic blood pressure monitors, various medical infrared ear thermometers and other products have gradually broken through in overseas markets. Furthermore, as products such as CT3 series continuous glucose monitoring systems, third-generation sleep ventilators, high-flow oxygen concentrators, and semi-automated external defibrillators have all achieved important technological breakthroughs, registration work has gradually been implemented in overseas countries and regions such as the European Union, the United States, Thailand, and Brazil. Judging from the research and development agency, Yuyue Medical, as a leading household device with continuously advanced products, also has a large R&D investment. The company has set up a research and development base in Rottweil, Germany, which is expected to continue to bring about breakthroughs in new overseas products.
Overseas promotion model?
Distribution is the main focus, and direct sales coexist. Looking at the promotion model, we believe that the company presents a model where distribution is the main focus and direct sales coexist. On the one hand, it actively seeks strategic cooperation with international partners to expand product channels and customer resources in overseas markets; on the other hand, it expands overseas products and channels through mergers and acquisitions of overseas companies such as German Metrax, and cultivates sales teams with an international perspective and territorial ability to expand overseas space. We believe that the company's current share of overseas revenue is still low, and the distribution model is faster and less expensive to open up overseas markets. As the company's overseas volume increases, it may gradually open up a new sales model.
Profit forecasting and valuation
Based on the above analysis, we expect the company's total revenue for 2024-2026 to be 85.48/99.14/11.453 billion yuan, respectively, up 7.23%, 15.98%, and 15.52% year-on-year; net profit to mother of 23.60/28.62/3.313 billion yuan, up -1.49%, 21.25%, and 15.76% year-on-year, corresponding to 2024-2026 EPS of 2.35/2.83.30 yuan, corresponding to 18 times PE in 2024 to maintain “increase in holdings” ratings.
Risk warning
Risk of increased competition in the industry; risk of changes in international policy/environment; risk of impairment of goodwill; risk of commercialization of new products falling short of expectations; risk of changes in asset disposal benefits.