Incident: In the third quarter of 2024, Sanyou Healthcare achieved revenue of 0.121 billion yuan, up 57.30% year on year; achieved net profit of 6.89 million yuan, up 104.53% year on year; in the first three quarters of 2024, Sanyou Medical achieved revenue of 0.333 billion yuan, down 7.3% year on year; realized net profit of 8.57 million yuan, down 87.07% year on year.

Gradual growth in the spine and ultrasound surgery business: The company's revenue in the third quarter achieved a good growth rate, mainly due to further expansion of terminal hospitals and channels leading to further growth in the company's spine business and the increase in operating income due to the merger of the French company Implanet; net profit jumped in the third quarter, mainly due to the gradual implementation of the company's own volume procurement for the spine business, and the gradual normalization of terminal surgery. The steady increase in the number of shipments led to an increase in revenue, and a simultaneous increase in profits.

Sales expense ratio decreased and R&D expense ratio increased: In the first three quarters of 2024, Sanyou Medical's sales expense ratio was 31.52%, down 8.4 pct year on year; management cost ratio was 11.98%, up 5.8 pct year on year; R&D expense ratio was 19.22%, up 6.1 pct year on year; financial cost ratio was -1.69%, up 1.5 pct year on year.

The increase in R&D expenses was mainly due to the fact that R&D personnel of Mizuki Tenpo, the holding subsidiary of the company, had an equity incentive in April 2024 to confirm the payment of shares and the inclusion of the holding company French Implanet in the scope of the company merger in February 2024, which led to an increase in R&D expenses.

Strengthen R&D innovation and actively expand the product line: The company has successively launched innovative therapeutic products such as the Adena thoracolumbar internal fixation series (including Duetto double nail technology), the Zina minimally invasive spinal internal fixation series, and the Halis spinal intervertebral PEEK fusion series, which have greatly enriched the product line.

Investment advice: The spine and ultrasound business is gradually growing, and the product line is being actively broadened. We expect the company to achieve operating income of 0.543/0.689/0.925 billion in 2024-2026 and net profit of 0.117/0.154/0.212 billion yuan to mother. The corresponding PE was 46.55/35.35/25.62 times, respectively, maintaining the “gain” rating.

Risk warning: Product development falls short of expectations; risk of losing core technical personnel; risk of market development for single product structures and traumatic products