Incident: 1) On August 8, the company released its 2024 semi-annual report. 2024H1 achieved operating income of 0.499 billion yuan (yoy +29.63%) and net profit of 0.035 billion yuan (yoy +303.72%). Among them, 2024Q2 achieved operating income of 0.25 billion yuan (yoy +12.56%) and net profit to mother of 0.021 billion yuan (yoy +2.19%).
2) “Health Care” 12-lead smart ECG coat* (iSense series) was officially approved by the Guangdong Drug Administration's “Class II Medical Device Registration Certificate” on April 29, 2024.
Innovative business models are gradually being verified, and the three major business styles have become more clear. 2024H1 achieved revenue of 0.499 billion yuan (yoy +29.63%). By product, household medical products and household health products respectively achieved revenue of 0.348/0.108 billion yuan, an increase of 32.13%/53.64% year on year, respectively. Due to the company's active business adjustments, the revenue of smart wearables fell 62.71% year on year to 0.055 billion yuan. Revenue growth is mainly due to:
① On the business side, the company's business gradually evolved from the three traditional categories (scales+wearable products+blood pressure monitors) to the three major segments of health devices+remote health services+digital health services. In terms of health equipment, 2024H1 added smart blood glucose meters and OTC hearing aids, and the focus was on medical-grade products. As of August 11, blood glucose meters had entered strategic customer sales channels, and OTC hearing aids had successfully entered well-known OTC pharmacy chains; in terms of remote health services, the company established in-depth cooperation with several leading European and American RPM customers, adding 2-3 categories from the original single device sales, and built an equipment management and logistics management platform on the basis of providing products to customers; domestic localization has spawned an innovative business - the digital health service sector. Faster progress is digital blood pressure management and remote dynamic ECG services. At present, remote dynamic ECG services have gradually been implemented in application scenarios such as “two-stage risk screening” and “post-operative prognosis management”. In the future, with the improvement of domestic medical standards and public awareness of telemedicine and the development of artificial intelligence technology, remote chronic disease management in China is expected to become popular.
The core product “12-lead smart ECG” of the 2024H1 joint venture Xinkang Medical was officially approved as a “Class II Medical Device Registration Certificate” by the Guangdong Drug Administration, and a second remote ECG user service center was built in Guiyang, which can cover the ECG business in key provinces such as Guizhou, Chongqing, Sichuan, and Yunnan;
② On the market side, the company accelerated its entry into emerging markets such as Middle East Africa and Southeast Asia on the basis of deep cultivation of European and American markets, and expanded overseas sales network coverage. 2024H1 actively participated in major medical exhibitions at home and abroad to further enhance its brand influence.
Business adjustments+cost reduction and efficiency increase, and net profit to mother achieved a high increase. The 2024H1 company achieved net profit of 0.035 billion yuan (yoy +303.72%), mainly due to: ① Continuous optimization of the business structure: the company actively reduced low-margin foundry business and increased investment in high-margin RPM business. The 2024H1 gross margin was 36.61% (yoy+8.27pct), and the net profit margin was 6.99% (yoy+4.75pct), which greatly improved profitability; ② In terms of expenses, the 2024H1 sales expenses ratio was 11.01% ( yoy+4.95pct), we estimate that the cost allocation is more accurate; the management cost ratio is 8.09% (yoy-2.11pct), which mainly benefits from lean management; the financial expense ratio is -1.76% (yoy+2.44pct), which is mainly due to changes in the US dollar exchange rate, which reduces the exchange income of assets settled in US dollars; the R&D cost rate is 10.34% (yoy-3.51 pct). It is estimated that the company's R&D efficiency has improved.
A new round of equity incentives was announced, demonstrating management confidence. The company released a draft stock option plan and a draft employee shareholding plan in April. The performance assessment requirements are that net profit due to mother in 2024 and 2025 (excluding equity incentives and employee shareholding expenses) reach 50 million yuan and 80 million yuan, respectively. The share option incentive plan was granted to a total of 44 people, with an exercise price of 9.16 yuan/share and a quantity of 2 million shares; the employee shareholding plan was granted to no more than 17 people, the price was 4.58 yuan/share, and the maximum quantity was 1.5 million shares.
This incentive plan is conducive to combining the interests of shareholders, the company and the core team. It is expected to stimulate the cohesion and combat effectiveness of management and core cadres, and demonstrate management's determination to be optimistic about the future of the company.
Investment proposal: As a senior manufacturer in the field of household health, the company has the full chain capabilities of “hardware+sensor+algorithm+big data+cloud computing+service”. It is expected that it will continue to benefit from the expansion of the chronic disease management market around the health IoT+ digital health service business and is expected to continue to benefit from the expansion of the chronic disease management market. We expect the company to achieve revenue of 1.112/1.36/1.601 billion yuan in 2024-2026, up 26%/22%/18% year on year; achieve net profit to mother 0.064/0.097/0.134 billion yuan, up 86%/52%/38% year on year, respectively; and corresponding PE valuations are 30/20/14X, respectively, maintaining an “increase” rating.
Risk warning: market competition risk, slowing market demand recovery, foreign trade policy risk, exchange rate fluctuation risk, risk of R&D falling short of expectations