Key points of investment:

Incident: The company released its 2024 semi-annual report. 2024H1 achieved revenue of 0.12 billion yuan (YoY +42.4%), net profit of 32.39 million (YoY +172.4%), net profit of 27.68 million (YoY +193.9%); 2024Q2: realized revenue of 64.84 million (+57.3% YoY), net profit attributable to mother 17.45 million (YoY +328.1%), net profit of 15.6 Million (+426.6% YoY)

Q2 meningeal collection execution volume+ low base for the same period last year, and the growth rate of new and old products is impressive: by product: 1) Artificial brain (ridge) membrane supplement 2024H1 achieved revenue of 69.11 million (+36.7% year over year).

In 2023, the company's products successively won bids/renewed contracts in the Anhui, Jiangsu, Liaoning Provincial League, and Shanxi Alliance. Along with the execution of the collection in 24, the company's product penetration rate increased, and the volume acceleration trend was obvious. Combined with the collection channel inventory during the same period, the low base of inventory cleared in the first half of the year, and achieved rapid growth in the first half of the year; 2) PEEK cranial and maxillofacial repair 2024H1 achieved revenue of 35.49 million (+32.8% year over year). Domestic PEEK materials have low permeability and broad market space. In November 2023, the craniomaxillofacial repair and fixation system of Henan Union Procurement Company was shortlisted, and there is room to increase market share. 3) The new hemostatic yarn and meningeal gel 2024H1 achieved revenue of 14.21 million (+145% over the same period last year), doubling the year-on-year increase. In the first half of 2024, more than 0.08 million tablets of hemostatic yarn were used clinically at home and abroad, and it was successfully selected in the Inner Mongolia Alliance collection in December '23.

In the future, with the implementation of collection, it is expected that it will further take the lead in promoting import substitution in the industry.

Collecting and scale effects are both driven, and cost rate optimization drives profitability improvement: from the cost ratio side, the collection and sales expenses rate has dropped significantly, 2024H1 has dropped to 18.7% (-8.8pct); the management fee rate has been slightly increased to 24.3% (+1.1pct) due to equity incentive expenses; R&D expenses have been reduced to 9.06% (-4.96pct) due to scale effects and the R&D project cycle (more clinical expenses for the same period of 23 years), and the net profit margin of 2024H1 has increased significantly. It increased to 26.54%, a significant increase compared to 2023H1's 13.87%.

The expansion of hemostatic yarn indications is progressing steadily, and equity incentives show confidence in development. Currently, there is a high clinical demand for surgical hemostatic materials, but currently they are mostly starch products, which have problems with low adhesiveness and high expandability. Therefore, the company is actively planning to expand the indications of hemostatic yarn, which is expected to further increase the market share of the company's products and promote domestic replacement. In July '24, the company issued a draft equity incentive plan to grant 0.461 million restricted shares and set revenue growth targets of 23%, 31%, and 26% year-on-year for 2024-2026. Compared to the previous round of equity incentives, this incentive targets 28 core technical and business executives, complementing the 23-year equity incentive plan and demonstrating confidence in the long-term development of the company's business.

Profit forecasting and investment advice

We expect the company's revenue in 2024-2026 to be 0.29/0.39/0.51 billion yuan, an increase of 26%/34%/32% year over year. As sales expenses optimization exceeded expectations, we adjusted 24-26 net profit of 0.055/0.095/0.135 billion yuan to 0.06/0.101/0.14 billion yuan to maintain a “buy” rating.

Risk warning

Risk of product development failure, risk of product sales falling short of expectations, increased market competition