Incident: The company released its three-quarter report for 2024. In the first three quarters of 2024, the company achieved operating income of 1.578 billion yuan, a year-on-year decrease of 4.78%, achieved net profit due to mother of 0.45 billion yuan, a year-on-year decrease of 20.09%, and realized net profit withholding of 0.44 billion yuan, a year-on-year decrease of 20.14%; in the third quarter of 2024, the company achieved operating income of 0.648 billion yuan, a year-on-year decrease of 6.11%, and achieved net profit to mother of 0.178 One billion yuan, a year-on-year decrease of 17.88%, achieved net profit not attributable to mother of 0.175 billion yuan, a year-on-year decrease of 16.70%; slightly lower than market expectations.

2024Q3 revenue is under pressure, and industry competition affects profitability.

(1) Growth analysis: In the third quarter of 2024, the company achieved revenue of 0.648 billion yuan, a year-on-year decrease of 6.11%, mainly due to continued pressure on the medical business due to adverse factors such as the economic environment and increased industry competition; the color sorter export business fluctuated. In the third quarter of 2024, the company achieved net profit of 0.178 billion yuan, a year-on-year decrease of 17.88%, mainly due to ① industry competition intensifying overall gross margin falling 2.06 pcts, ② fluctuations in exchange rates and US dollar assets affecting exchange gains and losses, leading to a 179.11% year-on-year increase in financial expenses.

(2) Profitability analysis: In the first three quarters of 2024, the company's gross sales margin was 50.45%, down 1.79 pct year on year, mainly because industry competition intensified the decline in profitability; net sales margin was 28.52%, down 5.46pct year on year, mainly because ① continued expansion of product promotion and marketing affects sales expenses, ② fluctuations in exchange profit and loss affect financial expenses; sales/management/finance expense ratios were 11.83%, 4.55%, and -1.99%, respectively, 1.13pct.

(3) Analysis of operating capacity and operating cash flow: In the first three quarters of 2024, the company's inventory turnover accelerated. The number of inventory turnover days was 142.01 days, down 26.79 days; the number of accounts receivable turnover days was 92.88 days, an increase of 22.16 days over the previous year, mainly due to the increase in revenue share of color sorters with long account periods under competitive pressure in the dental industry, affecting short-term operating capacity. Overall, the company has excellent operating capacity far higher than that of its peers. In the first three quarters of 2024, the company's operating cash flow improved significantly. Net operating cash flow was 0.481 billion yuan, an increase of 17.49% over the previous year.

(4) Continuously increase R&D investment: In the first three quarters of 2024, the company invested 94.6145 million yuan in R&D, up 10.37% year on year, accounting for 6.00% of revenue, up 0.83 pct year on year. As of June 30, 2024, the company has 149 authorized and valid invention patents (including 3 foreign authorized invention patents), 213 utility model patents, and 46 design patents. With high-intensity R&D investment, new products are repeatedly launched in various business segments of the company, effectively enhancing the competitiveness of the product market.

Dental CBCT sales exceeded 0.02 million units, and spinal surgery navigation and positioning equipment was selected for the first major technical equipment list in Anhui Province.

(1) On October 24, the 2024 Shanghai DTC Dental Exhibition opened. The company made a wonderful appearance with dental digital intelligent system solutions, which attracted the attention of many customers; during the exhibition, the company's dental CBCT also ushered in an important moment when sales exceeded 0.02 million units. The company has been deeply involved in the healthcare sector for more than ten years. From breaking international monopolies and obtaining the first domestic medical device registration certificate for dental CBCT products, to entering more than 20,000 diagnosis and treatment institutions and starting a new journey of serving dentists around the world, the company is one step ahead and leading the way.

(2) On August 26, the company released news. The Anhui Provincial Department of Industry and Information Technology announced the list of the second batch of major technical equipment in Anhui Province in 2024. The company's spinal surgery navigation and positioning equipment was successfully selected and rated as advanced in China. This is the first set of products recently selected by the company after X-ray inspection systems (security machines), 3D digital dental CT, and X-ray tire inspection equipment. The product passed the approval registration of the State Drug Administration in January 2023. At present, it has successfully assisted with more than 200 surgeries at the First Affiliated Hospital of the University of Science and Technology of China and Hefei Orthopedic Hospital, covering various procedures such as spinal fracture fixation, deformity correction, fusion fixation, and vertebral body shaping. The success rate of the operation is 100%, and it has received high praise from medical institutions and physician teams.

Maintain a “buy” rating. Considering the pressure on the domestic economic environment, intense competition in the dental market, and fluctuations in color sorter exports, we lowered our profit forecast. The company's net profit for 2024-2026 is 0.686 billion yuan, 0.762 billion yuan, and 0.894 billion yuan, respectively (the pre-forecast values for 2024-2026 were 0.742 billion yuan, 0.825 billion yuan, and 0.969 billion yuan, respectively); according to the stock price of October 25, 2024 The corresponding PE is 20.0, 18.0, and 15.4 times, respectively. Demand for color sorters is rigid, the dental circuit has long-term growth attributes, the company is speeding up overseas expansion, has a deterministic premium, and maintains a “buy” rating.

Risk warning: The development of the food testing industry falls short of expectations; the development of overseas business falls short of expectations; the development of the domestic dental CBCT industry falls short of expectations; the risk of increased competition in the domestic dental CBCT market; the development of chair-side repair systems falling short of expectations; the uncertain impact of exchange gains and losses on the company's performance; the uncertain impact of other operating income on the company's performance.