Results for the first half of 2024 were under pressure, and the decline on the profit side was greater than on the revenue side. In the first half of 2024, the company achieved revenue of 0.248 billion yuan (-16.47%), net profit attributable to mother 0.081 billion yuan (-27.35%), and net profit not attributable to mother of 0.074 billion yuan (-32.68%). Among them, 2024Q2 single-quarter revenue was 0.107 billion yuan (-18.49%), net profit attributable to mother 0.036 billion yuan (-39.78%), and net profit not attributable to mother was 0.029 billion yuan (-49.86%).

The company's performance in the first half of 2024 was under pressure, mainly because the large-scale ultrasound market matured, and the basic overseas business declined, but portable ultrasound continued to grow. The decline on the profit side was greater than on the revenue side, mainly due to a sharp year-on-year decline in exchange earnings and a continued increase in R&D investment.

The gross margin was basically flat, and the cost ratio increased significantly. The gross profit margin was 60.09% (-0.15pp) in the first half of 2024, and gross margin remained stable. The sales expense ratio is 10.20% (+1.44pp), the management expense ratio is 7.58% (+1.93pp), the R&D expense ratio is 15.78% (+3.07pp), the finance rate is -7.84% (+1.05pp), and the four rate is 25.73% (+7.49pp). The cost ratio has increased significantly, mainly due to the shrinking of the company's revenue scale, continued intensive R&D investment, and a sharp decrease in exchange earnings.

With continued high R&D investment, SonoAir and SonoMax are expected to expand domestically. The company continues to maintain a high proportion of R&D investment. In the first half of 2024, R&D investment was 0.039 billion yuan, accounting for 15.78% of revenue.

Three core technologies (microvascular imaging, low power technology for miniaturized ultrasound systems, and obstetric AI) have been added to promote the modernization and upgrading of portable ultrasound and high-end ultrasound. 39 new foreign market entry permits and 5 domestic market entry permits were added. The high-end lightweight notebook ultrasound SonoAir and the high-end desktop ultrasound SonoMax have obtained domestic market entry permits in 2024.

Investment advice: Considering fluctuations in overseas orders and the impact of domestic industry restructuring, the profit forecast is lowered. Revenue is expected to be 0.56/0.68/0.83 billion yuan (originally 0.68/0.89/1.1 billion yuan) for 2024-26, a year-on-year growth rate of 15%/22%/23%, net profit to mother 0.19/0.23/0.29 billion yuan (originally 0.21/0.28/0.36 billion yuan), with a year-on-year growth rate of 31%/21%/26%. The current stock price corresponds to PE = 12/10/8x, maintaining the “better than the market” rating.

Risk warning: risk of R&D failure; risk of single product structure; risk of exchange rate fluctuations; risk of order growth falling short of expectations.