Incidents:

On August 17, 2024, the company released its 2024 semi-annual report. During the reporting period, the company achieved operating income of 0.122 billion yuan (+42.4%), net profit of 0.032 billion yuan (+172.4%), net profit of 0.028 billion yuan (+193.9%); in the single second quarter, the company achieved operating income of 0.065 billion yuan (+57.3%), net profit to mother 0.017 billion yuan (+328.1%), net profit of 0.016 billion yuan (+426.6%). Domestic revenue 0.097 billion yuan (+47.5%), overseas revenue 0.025 billion yuan (+25.7%).

Comment:

Overall revenue slightly exceeded expectations, and the growth rate of collected varieties was impressive

During the reporting period, the company achieved net profit of 32 million yuan to mother, which is a high value in the profit range of 27-33 million yuan with a pre-increase of the results released on July 17, slightly exceeding expectations. The growth rate of meningeal products is impressive. Thanks to winning bids/renewals and continuous overseas growth, meningeal products achieved revenue of 69.12 million yuan (+36.7%); polyether ether ketone (PEEK) craniomaxillofacial repair and fixation products are expected to achieve domestic substitutation+technology substitution under the promotion of collection by the Henan Interprovincial Alliance, continuing to expand the PEEK product market share and increase product penetration rate. PEEK products achieved revenue of 35.49 million yuan (+32.8%) in the first half of the year.

New Shenwai products are expected to double, and diversified pipelines are being promoted at an accelerated pace

Absorbable regenerative oxidized cellulose (hemostatic yarn) is a high-end hemostatic product in neurosurgery. The company is one of the few domestic companies that can achieve mass production, and has broken the long-term monopoly of foreign investment. Hemostatic yarn is expected to usher in rapid growth through increased penetration rate+expansion of indications; dural medical gels are all innovative varieties of neurosurgery, and the domestic market is relatively empty, which can effectively reduce complications such as cerebrospinal fluid leakage after meningeal repair. During the reporting period, hemostatic yarn and meningeal gel achieved a total revenue of 14.21 million yuan (+145.0%). The company is accelerating progress in research pipelines such as oral repair membranes and hemostasis therapy, etc., and diversified pipelines have created a second growth curve.

The management is proactive, and equity incentives show confidence

The company has always actively responded to the collection of high-value consumables alliances, and achieved bid/renewal results for all products with precise policies, product advantages and flexible pricing strategies. During the reporting period, the company launched the 2024 equity incentive plan, awarding 0.461 million restricted shares (price 22.80 yuan/share) to 28 core technical and business executives for the first time, as a supplement to the 2023 equity incentive plan. The equity incentive target remains unchanged: the 24-26 revenue growth rate was not less than 23%/31%/26%, corresponding to operating income of 0.284/0.372/0.469 billion yuan.

Investment advice

Based on the company's overall performance in the first half of the year, we raised our profit forecast. The company's 2024-2026 revenue is expected to reach 0.318/0.412/0.51 billion yuan (previously forecast was 0.28/0.361/0.476 billion yuan), up 37.6/29.8/ 23.8% year on year; net profit to mother will reach 0.067/0.097/0.137 billion yuan (previously forecast value 0.055/0.085/0.13 billion yuan), respectively, up 63.9/45.2/41.0 %; the corresponding EPS is 1.01/1.47/2.08 yuan; the corresponding PE multiplier is 39/27/19X. Maintain a “buy” rating.

Risk warning

The amount collected and released fell short of expectations, the factory price of PEEK dropped significantly, and revenue from new products fell short of expectations.