Key points of investment:

The company released its 2024 semi-annual report.

24H1 achieved revenue of 0.354 billion yuan (YoY +22.3%), net profit of 5.66 million yuan (YoY -85.1%), and deducted non-net profit of 1.35 million yuan (-104.6% YoY).

The Q2 Company achieved revenue of 0.184 billion yuan (YoY +12.6%), net profit of 2.9 million yuan to mother (-86.5% YoY), and deducted non-net profit of 1.1 million yuan (YoY -106.3%).

After the adjustment, gross margin increased slightly compared to the same period last year. Fluctuations in net profit attributable to mother were mainly affected by share fee payments.

Affected by changes in accounting standards, the company removed maintenance costs and withholding expenses related to warranty from sales expenses and included in operating costs. The company's 24H1 gross margin was about 71.5% (0.1 pct higher than the 23H1 adjusted caliber).

The company carried out two rounds of equity incentives in 2022 and 2023, respectively. Both vesting periods include 2024, so the equity incentive fee had a significant impact on 24H1's apparent profit. Net profit to mother after excluding share payments was 47.74 million yuan (+7.2% year over year).

Continued investment in research and development, and the product pipeline entered the field of hepatobiliary surgery and urology.

24H1 invested 87.34 million yuan in R&D (up 25.5% year on year), and the share of R&D investment increased by 0.62 pct year on year. The company's product pipeline has successfully moved from the fields of gastroenterology and respiratory medicine to the fields of hepatobiliary surgery and urology, and has successively launched electronic percutaneous cholangioscopy, electronic cystoscopy, and electronic ureteropyroscope.

The company's endoscopic product matrix is becoming more and more rich. In the release of new products in '24, high-light intelligent imaging platforms, 640x cell endoscopes, 140x optical magnification endoscopes, ultra-fine gastroscopes, 4K bifocal endoscopes, etc. will effectively help the clinic; the AQ-150 4K ultra-high-definition endoscopy system and the AQ-120 endoscopy system will provide diverse choices for hospitals at different levels.

The product structure upgrade effectively enhances the company's competitiveness in domestic and overseas markets.

By region, 24H1 achieved revenue of 0.286 billion yuan (YoY +22.3%) and foreign revenue of 67.81 million yuan (YoY +22.4%), all of which maintained a good growth trend. In the domestic market, the company has established 15 marketing branches to achieve in-depth regional vertical management to enhance product coverage and market competitiveness; in overseas markets, the company has obtained multiple product approvals, and a series of competitive models have been approved for listing.

Profit forecasting and investment advice

According to regular reports and changes in accounting standards, adjusting core variables such as gross profit margin and sales expense ratio for endoscopy equipment, the company's 2024-2026 revenue is expected to be 0.99/1.4/1.96 billion yuan (previous value was 1.01/1.44/2.03 billion yuan), CAGR is 42.5%, and net profit due to mother is 0.082/0.154/0.257 billion yuan (previous value was 0.116/0.18/0.273 billion yuan), CAGR is 64.3% The current stock price corresponding to 2024-2026 PS is 5.3/3.7/2.6 times. As a leading domestic enterprise focusing on the soft mirror circuit, the company's products are innovative and clinically empowering, maintaining a “buy” rating.

Risk warning

1) R&D failure or product release falls short of expectations; 2) Medical accident risk or promotion falls short of expectations; 3) Imported brands may set up domestic factories or increase the risk of localization competition; 4) Overseas market expansion or international business risks.