Incident: On August 22, the company released its 2024 mid-year report. Domestic business grew steadily, and overseas business expanded rapidly. Number of cases: The total number of 2024H1 cases reached 0.1529 million (yoy +60.3%). Among them, the number of domestic cases reached 0.0953 million cases (yoy +10.8%), the number of overseas cases reached 0.0576 million cases (yoy +512.8%), and the proportion of overseas cases increased to 37.67%. Revenue: The company's revenue reached 0.861 billion yuan (yoy +39.8%), of which domestic revenue reached 0.633 billion yuan (yoy +10.1%), while overseas revenue reached 0.228 billion yuan (yoy +452.5%), further increasing its share of revenue to 26.5%. Profitability: The company's gross margin increased to 62.4% in the first half of the year (3.1% increase over the same period). The company's adjusted net profit reached 0.072 billion yuan (yoy +95.8%) in the first half of the year. Due to the rapid growth of overseas cases, the domestic adjusted net interest rate reached 17.7% due to the scale effect; the adjusted segment operating loss in the international market was about RMB 0.114 billion, mainly due to the high costs brought about by the company's continued expansion of the international market.

In the international market, the company continues to cultivate strategic markets such as Europe, North America, Asia Pacific and Brazil. Overseas reach regions and the number of doctors are growing rapidly. As of 2024H1, the company has successfully reached thousands of dentists from more than 50 countries around the world, compared to entering 20 new countries at the end of the year.

Domestic companies' business has developed with high quality, and prices for various product lines have remained stable. 2024H1, in the face of a steady increase in the number of domestic cases, the average sales price of each product line of the company remained stable. The company continues to expand sales channels at various city levels. In the first half of the year, the company covered more than 0.15 million patients. During the reporting period, the company maintained a leading market share in the domestic market, and the coverage rate of dental clinics at various city levels continued to increase.

Investment advice: The international layout continues to advance, the domestic market is actively exploiting the third- and fourth-tier markets, brand influence is gradually increasing, superimposed products continue to innovate, and subsequent growth can be expected. We expect the company to achieve revenue of 1.748/2.28/2.67 billion yuan in 2024-2026, up 18.4%/30.4%/17.1% year on year, respectively; net profit forecast to mother is 0.086/0.253/0.389 billion yuan, up 61.2%, 193.6%, and 53.8%, respectively.

We expect the adjusted net profit for 2024 to be 0.181 billion yuan, up 1.2% year on year. The corresponding adjusted EPS is 1.07 yuan, and the current price is 53 times the adjusted PE. We consider that the company has product strength no less than that of Invisalign, a global leader in the orthodontic industry, and the certainty that it will successfully go overseas is also relatively high. Compared with other medical consumer products, the company has a certain scarcity and maintains a “recommended” rating.

Risk warning: 1) the risk of increased competition in the industry; 2) the risk that the marketing model cannot adapt to market changes; 3) the expansion of low-tier cities falls short of expectations; 4) the risk of technological iteration falling short of expectations; 5) the risk of overseas market expansion.