1H24's loss level has narrowed markedly. It is optimistic that the company's net profit in '25 will be converted to 1H24 to achieve revenue of 3.704 million dollars (yoy -29.3%) and net loss of 7.943 million dollars (1H23 net loss of 14.731 million US dollars). The company focused on core product development and commercialization, and effectively optimized expenses through various measures. The loss level narrowed by 46.1% year on year. We expect the company to achieve revenue of 13.03/17.03/21.65 million dollars in 24-26, and we are optimistic that the company's net profit will improve in '25. We used the DCF valuation method (assuming a WACC of 12.8% and a sustainable growth rate of 0.2%), corresponding to a target price of HK$1.07, maintaining a “buy” rating.

Treatment and diagnostic consumables: Revenue is growing rapidly, and product commercialization work is steadily driving the company's 1H24 revenue of about 2.3 million US dollars (yoy +29%), mainly because the company continues to strengthen the sales and promotion of new consumables, including: 1) InterVapor hot steam ablation products:

As of 1H24, it has been commercialized in more than 60 hospitals in China, and about 180 hospitals have tested it; 2) “Fog Spring” catheter: As of 1H24, it has been clinically applied in many hospitals in China, and has been connected to the product network in 28 provinces and cities; 3) BroncTru extension catheter: The product was approved for marketing in 9M23, and as of 1H24, the product has been connected to the Internet in 23 provinces and cities. Considering the diverse categories of the company's consumables products and the continuous expansion of application scenarios, we are optimistic that the sector's revenue will continue to grow rapidly in '24.

Equipment products: optimistic about the marginal improvement of 2H24 development

We speculate that the company's 1H24 revenue for equipment products declined year-on-year. We speculate that factors outside the industry mainly affected the short-term pace of in-hospital bidding for medical equipment products, and that the company continued to adjust its business focus and actively strengthen the promotion of consumables products. Looking ahead to 2H24, considering the company's leading performance in equipment products and the recovery in industry demand, we are optimistic that the margins of sector development will improve. At the same time, the company is actively promoting the transfer of domestic production of products. The company's domestic version of the LungPoint system was approved domestically in 9M23, and the company expects the domestic version of the LungPro system to be approved domestically in 3Q24. We are optimistic that the overall gross margin will benefit from localized product production and further increase (1H24's overall gross profit margin of 79.8%, yoy+2.8pct).

New product research and development work is progressing in an orderly manner, building barriers to long-term development

The company is actively promoting the new product development process, including: 1) RF-II: for lung cancer treatment. The company submitted a registration application to the NMPA in 12M23. The company expects it to be listed domestically in '25. We are optimistic that it will provide a new clinical solution for lung cancer treatment after launch and become a new growth point for the company's performance; 2) TLD:

For COPD treatment, the company has initiated registered clinical trials in China at 7M23. As of 1H24, it has enrolled more than 80 patients in over 20 hospitals. The company expects to submit registration applications to the NMPA in '27.

Risk warning: Sales of core products fall short of expectations, increased market competition, and loss of core technical personnel.