Core views

2024H1's short-term performance is under pressure, in line with expectations. It is mainly affected by factors such as increased compliance requirements in the medical industry and the suspension of equipment procurement in some hospitals due to unimplemented medical equipment upgrading policies. With the gradual implementation of the equipment renewal policy and the gradual disbursement of relevant supporting funds, the medical equipment procurement process is expected to gradually resume. Looking ahead to Q4 and next year, if equipment updates are implemented in a wider range and intensity, the industry's demand for equipment procurement is expected to improve, and the company's performance is expected to grow well. At the same time, the large-scale medical equipment configuration adjustment policy will help gradually release the company's demand for high-end products. With advantages in various aspects such as core components, product strength, brands, and channels, domestic market share is expected to increase. In terms of overseas markets, with the approval of various high-end new products such as the company's 5.0T MR and UMi Panorama, and the continued strengthening of market expansion and channel construction, overseas business is expected to continue to grow at a high rate, and the share of revenue is expected to continue to increase.

occurrences

On August 30, 2024, the company released its 2024 semi-annual report

2024H1's revenue, net profit attributable to mother, and net profit not attributable to mother were 53.33 billion yuan, 9.50 million yuan, and 798 million yuan, respectively, up 1.18%, 1.33%, and 1.39% year-on-year, respectively. Basic earnings per share were 1.16 yuan/share. Profit distribution plan: A cash dividend of RMB 1.20 (tax included) will be distributed for every 10 shares. No bonus shares will be given in this profit distribution, and the share capital will not be transferred from the Provident Fund.

Brief review

Performance is in line with expectations, and domestic bidding is under pressure in the short term

2024H1's revenue, net profit attributable to mother, and net profit not attributable to mother were $53.3 billion (+1.18%), 0.95 billion yuan (+1.33%), and 798 million yuan (+1.39%), respectively, and the performance was in line with expectations. 2024Q2 revenue, net profit attributable to mother, and net profit after deduction of non-return to mother were 2.983 billion yuan (-2.47%), 0.587 billion yuan (-3.49%), and 0.498 billion yuan (-2.47%), respectively.

Q2 Performance is under pressure. It is expected to be mainly affected by factors such as increased compliance requirements in the medical industry and the suspension of medical equipment procurement in some hospitals due to unimplemented medical equipment upgrading policies.

By region, domestic revenue in the first half of 2024 was 4.401 billion yuan (-3%), and domestic equipment bidding activity slowed in the first half of the year; overseas revenue was 0.933 billion yuan (+30%), and the share of overseas revenue increased further to 17.5%. Among them, the Asia-Pacific market is expected to achieve high growth.

In the first half of 2024, the company's equipment revenue was 4.544 billion yuan, with mid-range and high-end products accounting for a significant increase in revenue. In terms of products, CT revenue is 1.618 billion yuan (-23%), which is expected to be mainly affected by the backlog of market demand. Among them, high-end and ultra-high-end products account for more than 50% of last year and continue to grow; MR revenue is 1.685 billion yuan (+12%), with high-end 3T procurement demand growing steadily, and ultra-high-end 5T products maintaining a strong momentum; MI revenue is 0.743 billion yuan (+19%); XR revenue is 0.256 billion yuan (-21%), which is expected to slow down due to relatively saturated demand in the DR market; RT revenue was 0.242 billion yuan (+188%), a significant year-on-year increase, mainly due to the low performance base for the same period last year and the release of the company's new products. Service revenue was 0.617 billion yuan (+24%), accounting for 12% of revenue, an increase of 2.12 percentage points over the previous year. It is expected mainly due to the continuous increase in the company's equipment stock and the continuous improvement of the global after-sales service system.

Domestic bidding is expected to gradually improve, and overseas business is expected to achieve steady growth throughout the year. With the gradual implementation of equipment renewal policies and the gradual disbursement of relevant supporting funds, the medical equipment procurement process is expected to gradually resume. Looking ahead to Q4 and next year, if equipment updates are implemented in a wider range and intensity, the industry's demand for equipment procurement is expected to improve, and the company's performance is expected to grow well. At the same time, the large-scale medical equipment certification adjustment policy will help gradually release the company's demand for high-end products. With advantages in various aspects such as core components, product strength, brands, and channels, domestic market share is expected to increase. In terms of overseas markets, with the approval of various high-end new products such as the company's 5.0T MR and UMi Panorama, and the continued strengthening of market expansion and channel construction, overseas business is expected to continue to grow at a high rate, and the share of revenue is expected to continue to increase.

Gross margin increased slightly, and investment in marketing and R&D continued to increase

2024H1's gross margin was 50.37%, up 1.66 percentage points from the previous year. On the one hand, the share of revenue from high-end products and services with high gross margins increased; on the other hand, supply chain optimization management measures effectively reduced costs. The sales expense ratio was 16.71%, up 1.08 percentage points year on year, mainly due to the increase in sales labor costs and travel and conference expenses; the management expense ratio was 4.48%, down 0.20 percentage points year on year; the financial expenses ratio was -1. 23%, up 1.00 percentage points year on year, mainly due to lower domestic benchmark interest rates, lower capital return, and market exchange rate fluctuations. The R&D expense ratio was 15.49%, down 1.31 percentage points year on year, and R&D investment accounted for 19.07% of revenue. 1.70 percent. The net cash flow from operating activities is -0.625 billion yuan (-0.511 billion yuan in the same period last year). It is expected to be mainly due to the expansion of the company's business scale and an increase in raw material procurement, labor expenses, and tax expenses. The number of accounts receivable turnover days was 132.33 days, an increase of 55.50 days over the previous year. It is expected to be mainly affected by the overall market environment in the first half of the year, due to a slowdown in repayment speed. The number of payable turnover days was 136.60 days, an increase of 14.30 days over the previous year, mainly due to increased procurement of raw materials. The rest of the financial indicators are generally normal.

Domestic market: The industry has benefited from policies such as configuration certificate adjustments and equipment updates. The company's competitive advantage is expected to continue to increase 1) Large-scale medical equipment configuration license management catalogue adjustments to benefit domestic medical equipment leaders: In March and June 2023, the National Health and Health Commission successively released new versions of the “Large Medical Equipment Configuration License Management Catalogue (2023)” and the “14th Five-Year Plan”. Compared with the 2018 edition of the catalogue, PET-MR was adjusted to Class B, and all CT and MR devices no longer require configuration certificates. The number of configuration plans has increased significantly, the overall allocation threshold has been lowered, and entry standards tend to be relaxed. The adjustment of the certification policy is expected to further release the company's demand for high-end CT, MR, PET-CT/PET-MR, and RT products. 2) Catalyzing equipment renewal policies: Equipment renewal policies are expected to make an incremental contribution to medical equipment procurement demand in the next few years. It is recommended to focus on the pace of implementation of follow-up policies. 3) Multi-dimensional capability building company α advantage: The medical imaging equipment industry has a high threshold, and Lianying has established a leading position in domestic production after more than ten years of development. According to the company's financial report, according to the new domestic market value statistics for the first half of 2024, the company's CT ranked first (high end and ultra-high-end CT market share increased significantly year-on-year), MR ranked third (strong MR growth of 3.0T and above), MI ranked first (PET/CT market share ranked first, PET/MR ranked second in China's market share temporarily), diagnostic XR products (including fixed DR, mobile DR, and breast DR) ranked first, RT ranked third (the product portfolio continues to be rich, with leading manufacturers in the industry The gap has narrowed further). The company is expected to continue to increase its domestic market share with advantages in various aspects such as core components, product strength, brand, and channels.

Overseas markets: There is broad room for growth, and the international layout is progressing steadily 1) Product layout: The company's product registration is progressing steadily. As of the first half of 2024, the company has passed FDA certification and approved for sale in the US; a total of 40 products have obtained EU CE certification. 2) Channel construction: The company has a differentiated layout for different markets, continuously enhances overseas sales capabilities, and deeply engages in marketing system network construction. As of the first half of 2024, the company's global service team has exceeded 1,000 people, distributed in many countries and regions, and has set up overseas teams through 19 overseas subsidiaries. 3) Huge long-term potential overseas: In the first half of 2024, the company's overseas revenue accounted for 17.5%, which is still low. In the long run, the company has broad scope for overseas growth, and is expected to occupy a position with R&D and cost performance advantages, thus bringing greater flexibility in performance growth.

Optimistic about the company's long-term development prospects and investment value

The company is a leading domestic medical imaging equipment company with strong long-term growth momentum. In the short term, with the gradual implementation of equipment renewal policies and the gradual establishment of relevant supporting funds, industry equipment procurement demand is expected to gradually recover; at the same time, large-scale medical equipment certification adjustment policies will help gradually release the company's demand for high-end and high-end products, and market share is expected to increase under various advantages such as core components, product strength, brand, and channels. In the medium term, the overseas market has broad room for growth, and the company's share of overseas revenue continues to rise, which is expected to contribute flexibility to the Group's overall growth. In the long run, the company continues to increase investment in R&D, and its products continue to be iteratively upgraded, and it is expected to maintain its leading position in the industry. Considering the increase in compliance requirements in the medical industry and uncertainty about the pace and volume of implementation of the equipment renewal policy in the second half of the year, we lowered our profit forecast. We expect the company's revenue to increase 11%, 21%, and 24% year-on-year respectively in 2024-2026, and net profit to mother is expected to increase 10%, 18%, and 18%, respectively. Maintain a “buy” rating.

Risk warning

Due to industry policy factors such as increased compliance requirements in the medical industry, there is a risk that our performance forecasts may not be met; there is a risk that the implementation of the medical equipment trade-in policy will fall short of expectations; there is a risk that the core components of some of the company's products will fall short of stock or cost increases in the short term; there is a risk that market competition intensifies and the company's market share will decline; there is a risk that key core technologies will be infringed or technical secrets revealed; there is a risk that the profit growth rate may fluctuate. If the company's R&D progress lags behind or R&D results fail to meet clinical needs, there will be a risk that sales of new products fall short of expectations and market competitiveness will decline; trade friction and geopolitical risks; core component procurement risks; talent shortages and losses; risk of fluctuating or falling gross margin levels; risk that accounts receivable cannot be recovered; risk of tax incentives being greatly affected; risk of loss of inventory price reduction; and related transaction risks.