Incidents:

On August 23, 2024, Samsung Healthcare released its 2024 semi-annual report: 2024H1, the company achieved revenue of 7 billion yuan, +26%; net profit to mother of 1.15 billion yuan, +32% year over year; net profit after deducting non-return to mother of 1.08 billion yuan, +32% year over year; gross sales margin of 34.6%, +3.5 pct year on year; net sales margin of 16.5%, year on year +0.8 pct year on year.

Among them, 2024Q2 had revenue of 4 billion yuan, +31% month-on-month, +20%; net profit to mother of 0.79 billion yuan, +116% month-on-month, +31% year-on-year; net profit of 0.7 billion yuan without return to mother, +87% month-on-month, +28% year-on-year; gross sales margin of 37.2%, +6.0 pct month-on-month, +5.6 pct year-on-year; net sales margin 19.9%, +7.8pct month-on-month, +1.7pct year-on-year.

Investment highlights:

2024H1's revenue continued to grow rapidly, and the profit of the power distribution business increased dramatically. 2024H1, the company's electricity distribution achieved revenue of 5.4 billion yuan, +26% year over year, net profit 0.97 billion yuan, +29% year over year; medical business revenue was 1.6 billion yuan, +27% year over year. Among them, Oaks Intelligent Technology, a subsidiary that is mainly engaged in the power distribution business, achieved revenue of 3 billion yuan, +49% year over year, net profit of 0.5 billion yuan, +130% year over year, net interest rate of 16.6%, and +5.9 pct year on year. According to our subsidiary's business estimates, the growth in the power distribution business has contributed to a significant increase in the profitability of the company's electricity distribution business.

Overseas orders have maintained a high increase, and overseas power distribution continues to break through. By the end of June 2024, the total number of on-hand orders was 14.9 billion yuan, +26% over the same period last year. Among them, the total number of overseas orders in hand was 6.2 billion yuan, +40% compared to the same period, and the cumulative number of domestic orders in hand was 8.7 billion yuan, +17% over the same period last year. The company is highly reusing existing overseas power customer resources, promoting the distribution business overseas, and gradually forming new revenue growth points. 2024H1, the first breakthrough in the power distribution business in Europe, won the bid for the 0.466 billion yuan transformer project of the Greek Electricity Authority; in August 2024, power distribution achieved its first breakthrough in the Americas and won the bid for the 0.08 billion yuan transformer project in Mexico. In addition, the company accelerated the transformation of the electricity business from a single equipment product to a system integrated turnkey model for integrated smart energy management, and 2024H1 won the bid for Brazil's COPEL Smart Meter 0.31 billion yuan turnkey project. In terms of localized management, the company has built five major production bases overseas in Brazil, Indonesia, Poland, Germany, and Mexico. Overseas bases account for about 50% of production capacity, and the results of localized operations are outstanding.

Domestic power grids continue to take the lead in winning bids, and off-grid new energy customers continue to explore. The power grid won the bid and continues to lead the industry. For 2024H1, the company won the bid for about 0.395 billion yuan in the State Grid's first metering equipment tender project, +30% over the same period last year. The company won about 0.38 billion yuan in the first batch of framework bidding projects for measurement products in 2024, or +108% over the same period; it won about 0.249 billion yuan in the first batch of framework tenders for distribution network equipment in 2024, or +40% compared to the same period last year. Off-grid customers focus on the field of new energy, increase the coverage of the five major and six small power generation central enterprises, dig deeper into the bidding needs of provincial companies, and increase the development of major customers in local state-owned enterprises and other industries. 2024H1, the company won the bid for Datang Group's 0.836 billion yuan wind power photovoltaic prefabricated substation project, CGN's 0.176 billion yuan box-conversion equipment project, etc.

Demand for rehabilitation continues to grow under aging, and the company is strengthening the construction of a rehabilitation medical service chain system featuring critical illness rehabilitation. Currently, the aging trend in China continues to intensify. As the per capita disposable income of residents steadily increases, patients' ability to pay and health awareness continue to increase, and demand for post-operative rehabilitation is increasing accordingly. 2024H1, the company's rehabilitation medical business achieved revenue of 0.8 billion yuan, an increase of 37% over the previous year. By the end of June 2024, the number of hospitals under the company had reached 34, including 28 rehabilitation hospitals. 6 new hospitals were added during the reporting period, and the total number of beds had exceeded 10,000.

Profit forecast and investment rating: The company is a leading electricity meter company with continuous breakthroughs in the distribution business. It is expected that in 2024-2026, the company is expected to achieve operating income of 14.4/18/21.4 billion yuan, with year-on-year growth rates of +26%, +25%, and +19% respectively; net profit to mother is 2.38/3/3.61 billion yuan, with year-on-year growth rates of +25%, +26%, and +20%, respectively. The current stock price of PE corresponds to 18X, 15X, and 12X respectively. We maintain the company's “buy” rating.

Risk warning: management risk of scale expansion, risk of industry policy, investment risk, health care operation risk, health policy risk.