Matters:

The company released its 24-year report, with operating income of 2.133 billion yuan (+6.26%), net profit of 0.197 billion yuan (+12.61%) to mother, deducting non-net profit of 0.178 billion yuan (-10.38%). 24Q2, operating income of 1.119 billion yuan (-0.53%), net profit of 0.117 billion yuan (+0.78%) to mother, deducted non-net profit of 0.101 billion yuan (-25.42%).

Commentary:

The blood sugar monitoring business is growing steadily. By product, 24H1's blood sugar monitoring system revenue was 1.552 billion yuan (+12.74%), iPOCT monitoring system revenue was 0.088 billion yuan (+5.89%), blood fat detection system revenue was 0.122 billion yuan (-20.86%), glycated hemoglobin testing system revenue 0.12 billion yuan (+37.67%), blood pressure monitor revenue 0.062 billion yuan (+2.20%), operating product revenue 0.038 billion yuan (-52.72%), revenue from adjuvant products such as diabetes nutrition and nursing care is 0.134 billion yuan (+0.02%). The blood sugar monitoring system business achieved steady growth.

Revenue growth in regions other than China and the US is growing faster. By region, the domestic revenue of 2024H1 is 1.201 billion yuan (+5.73%), the US region's revenue is 0.695 billion yuan (+2.35%), and the rest of the world's revenue is 0.237 billion yuan (+23.19%).

Subsidiary Trividia improved operations. 2024H1, the US subsidiary Trividia achieved revenue of 31.22 million yuan; its direct holding company Xinuo Health achieved net profit of 22.14 million yuan; the US subsidiary PTS achieved revenue of 9.27 million yuan, and its direct holding company Sannuo Health achieved net profit of 4.07 million yuan.

Blood sugar monitoring systems and overseas gross margins have improved markedly. The overall gross margin of 24H1 increased to 55.15% (+3.96pct), and the gross margin of the blood sugar monitoring system was 61.32%, an increase of 5.16 pct over the previous year, which is expected to be related to changes in product structure; the gross margin of revenue in the US region was 43.77%, an increase of 5.03pct, which is expected to be related to improvements in the operation of US subsidiaries; and the gross margin in other overseas regions was 40.78%, an increase of 9.55pct.

CGM products continue to be released, and a new generation of products has begun to be registered domestically. During the “618” period of 24H1, the company's omni-channel sales of CGM products surpassed 0.3 million boxes, ranking first in sales. Furthermore, the new generation of CGM products have been registered and declared by the NMPA, and the products are constantly being upgraded and iterated.

Credit impairment has a certain impact on profits. 24H1 has a sales expense ratio of 26.08% (+2.30pct), a management expense ratio of 9.58% (-0.60pct), an R&D expense ratio of 8.02% (-0.01pct), and a financial expense ratio of 0.23% (-1.05pct). The overall cost ratio is stable. 24H1 lost 23.85 million yuan in credit impairment, which had a certain impact on profits, mainly due to an increase in preparation for bad accounts receivable accrued by its subsidiary Trividia in the current period.

Investment recommendation: Based on the interim report results, we maintain the profit forecast. The company's net profit for 2024-2026 is 0.44, 0.54, and 0.65 billion yuan, respectively, up 54.9%, 22.1%, and 21.7% year-on-year. The corresponding EPS is 0.78, 0.95, and 1.16 yuan, respectively. The corresponding EPS is 0.78, 0.95, and 1.16 yuan, respectively. The corresponding target price is about 32 yuan, maintaining the “recommended” rating.

Risk warning: 1. Competition in the CGM industry intensifies; 2. CGM's overseas launch falls short of expectations; 3. Product iteration and FDA registration progress fall short of expectations; 4. Risk of industry technology iteration impacting traditional BGM business; 5. Risk of impairment of goodwill.