Key points of investment:

The company is the sole supplier of Stryker's fluorescence endoscopes: Haitai Xinguang was founded in 2003 and is mainly engaged in R&D, production and sales of medical endoscopic instruments and optical products. The company is committed to exploring the integration and innovation of optical technology in various fields such as medicine, industry, lasers, and biometrics, and has established four major technology platforms of “optics, precision machinery, electronics, and digital imaging”.

Based on the company's outstanding technical strength and product performance in the field of fluorescence endoscopy, the company's core product, the fluorescence endoscope series, was used by the international mainstream medical device brand American Stryck and used in its first high-definition fluorescence laparoscopy complete system launched in the world, becoming the sole design and manufacturer supplier of the core components of this equipment.

Affected by inventory clearance in the short term, overseas orders are expected to gradually resume: benefiting from increased demand from core customers brought about by the launch and preparation of new systems, the company's fluorescence endoscope shipments increased dramatically in the second half of 2022. However, due to the fact that the new system for core customers was delayed from the original plan, the new system mainly consumed inventory for a long period of time after launch, which caused the company to decline in fluoroscopic shipments in the second half of 2023. Customers continued to clear inventory in 2024. In the first half of 2024, the company's revenue fell 18% year on year, and net profit to mother fell 21%. We believe that as inventory clean-up by the company's core customers tend to end, the recovery of the company's overseas orders is expected to drive a steady recovery in performance.

Changpo Houxue in the endoscopy industry: Compared with traditional open surgery, minimally invasive surgery is more popular for its advantages such as less trauma. The popularity of minimally invasive surgery has continued to increase in recent years, and techniques such as fluorescence have gradually become popular. The global hard lens market is growing steadily and is expected to reach $7.2 billion in 2024, with fluorescent products increasing year by year. The growth rate of the Chinese market is higher than the global level, and fluorescence products are still in the early stages of development. With the promotion of imported brands, technological research and development innovation by Chinese enterprises, and approval and marketing of related fluorescent products, etc., it is expected that China's fluorescent hard mirror market will enter a period of rapid growth.

The company's endoscopy business is two-wheel drive: In addition to the ODM business, the company has begun to lay out its own brand products domestically in recent years based on technology and product experience accumulated in mainstream international markets. This year is a year of full strength for the company's three major machines/complete machine channels. According to the company's announcement, the company has already launched 100 complete machines to the market in the first half of the year, and 200 units are expected to be on the market throughout the year. With the company's many years of ODM experience and multi-channel empowerment, we expect the company's products to occupy a place in the country.

First coverage, giving a “buy” rating: We expect performance to gradually recover as the company's inventory is cleared. The company's revenue for 2024-2026 is 0.521 billion yuan, 0.653 billion yuan, and 810 million yuan, respectively, up 11%, 25%, and 24% year over year, respectively, and net profit to mother is 0.166 billion yuan, 0.214 billion yuan, and 276 million yuan, respectively, up 14%, 29%, and 29% year-on-year, corresponding to price-earnings ratios of 19 times, 15 times and 11 times. Based on a comparable company's 2024 PE calculation, the company's reasonable market value is 4.3 billion yuan, which has room to rise by about 35% compared to the 3.2 billion market value on September 20. It was covered for the first time and gave it a “buy” rating.

Risk warning: R&D risks, increased market competition, trade risks between China and the US