Under the two-pronged approach of developing overseas sales and rich product matrices, 1H24 achieved impressive year-on-year growth, and Happy Medical released its semi-annual report. 1H24 achieved revenue of 0.499 billion yuan (yoy +29.63%) and net profit of 34.8497 million yuan (yoy +303.72%). Among them, Q2 revenue was 0.25 billion yuan (yoy +12.56%, qoq +0.50%), and net profit to mother was 21.1842 million yuan (yoy +2.19%, qoq +55.02%). In the first half of the year, the company took a two-pronged approach, enriching the product matrix internally, continuously reducing costs and increasing efficiency; actively developing new markets and new customers, and building overseas localized sales and service teams. We continue to be optimistic about the revenue growth potential brought about by the launch of new products, AI field layout, and overseas channel development in the future. Product structure optimization and lean management are expected to drive further profit margin optimization and forecast the company's 24/25/26 revenue of 1.19/1.53/1.93 billion yuan, maintaining the previous value. Considering the growth potential of the company's remote health management sector, refer to the company's 24-year average forecast average of 2.22 times PS, giving the company a valuation of 2.5 times PS in 2024, and maintaining the target price of 13.7 yuan.
Household medical/household health products revenue grew rapidly. Structural optimization led to gross margin of +8.27pp, 24H1 household medical product revenue increased 7.67pp year on year; household health products revenue increased by 7.67pp year on year; household health products revenue was 0.108 billion yuan (yoy +53.64%), gross margin increased 13.31pp year on year; smart wearable products revenue was 5.5057 million yuan (YoY: -62.71%), and gross margin increased year on year 59.69 pp. 1H24's gross margin increased by +8.27pp to 36.61% year on year, and net margin increased +4.42pp to 6.60% year over year. The main reasons for the significant improvement in profit margins are: 1) optimization of the customer structure and product structure, strategic adjustment of order shipments for products with low gross profit, and an increase in the gross margin level of various main products; 2) continuous improvement of the company's organizational capabilities and efficient governance (cost reduction and efficiency).
Medical-grade health IOT devices have broad prospects overseas. The domestic business model of the digital ECG business is gradually being implemented. According to the company's semi-annual report meeting records (2024/8/11 announcement), the company achieved outstanding results in the first half of the year, divided into three strategic segments: 1) Medical-grade health IoT device business: Continuously improving the product layout, adding 4G blood sugar meter products have now entered strategic customer sales channels, and the addition of OTC hearing aids is gradually opening up domestic pharmacy sales channels. At the same time, the company is expanding into emerging markets such as Middle East Africa and Southeast Asia on the basis of deep-seated European and American markets, with broad prospects. 2) RPM Solution Business: Deepen cooperation with leading overseas customers and add 2-3 categories from single equipment sales. In the future, it will further increase the sales share of strategic customers and continue to increase profit levels. 3) Digital medical services: Accelerate the implementation of service models and business models for the digital ECG business in South China and West China, and focus on building a second growth curve for the company's development.
Maintain target price of $13.7 and maintain buy rating
We are optimistic about the company's overseas development and product structure optimization. We forecast the 24/25/26 revenue of 1.19/1.53/1.93 billion yuan. Referring to the comparable company's 24-year Wind consensus average of 2.22x PS, the company will be given 2.5x PS in 2024, maintain the target price of 13.7 yuan, and maintain the purchase rating.
Risk warning: Competition in the health IoT market is intensifying; there is a risk that global 3C demand will slowly recover.