Key points of investment

The company's 2024H1: revenue was 0.35 billion yuan, up 22% year on year, net profit to mother was 0.006 billion yuan, down 85% year on year. Net profit after share payment was 0.048 billion yuan; of these, 2024Q2 revenue was 0.18 billion yuan, up 13% year on year, and net profit to mother was 0.003 billion yuan, down 87% year on year. Revenue was under pressure in the short term due to the slowdown in admissions, but according to data from the bidding network, the company won the bid from June to July 2024, showing a significant month-on-month increase. We believe that as the promotion of new products accelerates, it is expected to bring revenue elasticity in 2024.

Growth: Revenue is under pressure in the short term, but revenue growth in 2024 can still be expected under the volume of new products (1) during the promotion period of new products, and revenue growth is still the core. 2024H1 revenue is under pressure in the short term, but with the increase in bid wins in the second half of the year, revenue growth can be expected throughout the year. 2024Q2's revenue was 0.18 billion yuan, up 13% year on year. Revenue was under pressure in the short term due to the slowdown in admissions, but according to data from the bidding network, the company's bid volume rebounded significantly from June to July 2024. We believe that the company is in a new product promotion period, and revenue growth is still the core. As the company's bid volume increases steadily in the second half of the year and equipment trade-in or volume, revenue growth can still be expected in 2024; (2) Continued commercialization of new products and the construction of a relatively complete product platform are expected to generate additional impetus. In March 2024, the company successively introduced electronic percutaneous cholangioscopy and electronic cystoscopy. In May 2024, the company released electronic ureteropyropyeloscopy. The types of lenses were gradually improved and expanded from gastroenterology and respiratory medicine to hepatobiliary surgery and urology. We believe that with the gradual commercialization of new products, it is expected to be driven by additional revenue. (3) Under equity incentives and amortization, profit growth is negative, investment in new product promotion continues, and profit growth may be under pressure throughout the year. Affected by restricted stock incentive plans, etc., the company's net profit to mother was 0.006 billion yuan, of which net profit after share payment was 0.048 billion yuan. According to the company's equity incentive draft, the company's incentive target A revenue of 0.99 billion yuan or net profit of 0.12 billion yuan (excluding equity incentives and goodwill impairment effects), and the corresponding share incentive amortization expenses were about 0.088 billion yuan. We believe that the company is in a new product promotion period. Profit margins are low, profit growth rates fluctuate greatly, investment in new product promotion continues and equity incentive costs are high, and profit growth may still be under pressure throughout the year.

Profitability: Equity incentive costs are high in 2024, and the net interest rate may drop by 71.46% of the company's gross profit margin in 2024H1, down 4.82pct year on year, of which Q2 gross profit margin is 66.9%, down 9.45pct year on year; 2024H1 net profit margin is 1.58%, down 11.48 pcts year on year, of which Q2 net interest rate is 1.64%, and expenses such as equity incentives are high, down 0.13 pct year on year. We believe that in 2024-2026, (1) the company's gross margin will remain at a high level. The volume and price of the company's products are rising sharply from mid-range to high-end. We believe that overall 2024-2026 is expected to maintain a high gross margin level; (2) sales expenses may continue to be high during the new product promotion period. In 2024, the company is still in the AQ-300 product promotion period. Sales expenses may still be high, combined equity incentive costs are high, and the annual net interest rate may decline. However, looking ahead to 2025-2026, the company's profitability may show a steady upward trend due to the decline in equity incentive amortization and the scale effect of revenue growth.

Profit forecasting and valuation

Taking into account the effects of the slow pace of admission of new products and annual equity incentive fees, we lowered the company's 2024-2026 profit forecast. The company's 2024-2026 revenue is expected to be 0.881/1.262/1.756 billion yuan, respectively, up 29.85%, 43.33%, and 39.10% year on year; the company's 2024-2026 net profit to mother was 0.04/0.148/0.267 billion yuan, respectively, up -30.66% and 268.10 billion yuan year on year, respectively % and 80.55%, corresponding EPS was 0.30/1.10/1.98 yuan respectively, corresponding to 130 times PE (6 times PS) in 2024, maintaining the “gain” rating.

Risk warning: risk of product development and commercialization falling short of expectations; risk of industry policy changes; risk of increased competition in the industry; risk of fluctuating demand.