H1 and Q2 results fell short of our expectations
The company announced 1H24 results: revenue of 3.38 billion yuan, -21% year over year; net profit attributable to mother/net profit without return to mother was 0.7/0.65 billion yuan, respectively, -27%/-28% YoY. Looking at the second quarter alone, revenue was 1.46 billion yuan, -22% year over year; net profit attributable to mother/net profit after deduction of net profit without return to mother was 0.215/0.191 billion yuan, respectively, or -41%/-44% YoY. Due to factors such as pressure on the retail business, the first half and second quarter results fell short of our expectations.
Development trends
The pharmaceutical sector was clearly under pressure in the first half of the year, and innovative cardiovascular devices maintained good growth. According to the announcement, looking at the business segment in the first half of the year: 1) Medical device revenue was 1.75 billion yuan, -13% year over year. Revenue from cardiovascular implants was 1.15 billion yuan, +17% year over year. Among them, coronary income was +10% year over year, and structural heart disease income was +54% year over year. Revenue from surgical anesthesia was 0.27 billion yuan, -4% year on year; in vitro diagnosis revenue was 0.2 billion yuan, -57% year over year. 2) The revenue of the pharmaceutical sector was 1.13 billion yuan, -29% year-on-year. Among them, revenue from raw materials was 0.2 billion yuan; revenue from formulations (generic drugs) was 0.94 billion yuan, -33% compared with the same period last year. According to the announcement, adjustments related to retail channels have had an impact on some products, and the company expects that the impact may continue for 1-2 quarters. The company expects API revenue to remain stable year-on-year in 2024, and formulation revenue will drop to 1.5-1.6 billion yuan.
3) The revenue of the medical services and health management sector was 0.5 billion yuan, -28% year-on-year. Lepu Yunzhi Technology's revenue was 0.26 billion yuan, -29% year over year. The announcement stated that the main reason was the decline in demand for household devices for vital signs monitoring in the post-pandemic era; the revenue of Hefei Cardiovascular Hospital was 0.08 billion yuan, +17% year over year.
The smooth progress of innovative devices and drug pipelines may provide growth impetus. As of 1H24, in terms of innovative devices, products such as coronary shock wave balloons, degradable room septum oclators, atrial septal radiofrequency needles, mastoid balloons, and anchored balloons have been approved for marketing. TAVR, knee pads, peripheral shock wave catheters, coronary spike balloons, etc. are in the registration stage; rapamycin drug injection systems, degradable left atrial ear blockers, subknee medicine balls, RDN, atrial fibrillation cryocoidal balloons, atrial fibrillation PFA catheters, etc. are in clinical trials. We believe that the company has laid out a rich and leading product matrix in the field of high-value consumables for innovative medical devices, and is entering the harvest period. In terms of innovative drugs, GLP1/gcGR/GIP-FC three-target molecule MWN101 is undergoing phase 2 clinical trials for type II diabetes and obesity, respectively, and several other molecules are under investigation.
We are optimistic that the continuous listing of innovative devices and drugs will drive the company's revenue.
Profit forecasting and valuation
Considering that sectors such as pharmaceuticals and in vitro diagnostics are under pressure, we lowered our 2024/25 non-net profit forecast by 25%/21% to 1.5/1.8 billion yuan. The current stock price corresponds to 13/12 times the 2024/25 deducted non-price-earnings ratio.
We lowered our target price by 25% to 15 yuan, corresponding to the 2024/25 deducted non-price-earnings ratio of 18/16 times, with 36% upside compared to the current stock price. Based on optimism about the company's subsequent innovative devices and pharmaceuticals, we maintain an outperforming industry rating.
risks
The impact of collection exceeded expectations, drug channel adjustments, research and development failures, the competitive landscape deteriorated, and internationalization fell short of expectations.