Key points of investment

Incident: The company announced that in the first three quarters of 2024, the company achieved total operating income of 1.525 billion yuan (+25.63%, indicating year-on-year growth rate, same below), net profit to mother of 0.528 billion yuan (+30.97%), and net profit of 0.508 billion yuan (+41.08%) after deducting non-return to mother. The results were in line with our expectations.

Single Q3 results were affected by the off-season for in-hospital surgeries, which declined slightly compared to Q2. The company achieved revenue of 0.524 billion (+23.05%) in a single Q3, net profit of 0.186 billion yuan (+27.24%), and net profit of 0.18 billion yuan (+53.18%) after deducting non-return net profit. Single Q3 revenue fell 3.99 pcts month-on-month, net profit to mother fell 8.31 pcts month-on-month compared to Q2, and net profit after deducting non-return to mother decreased 5.68 pcts month-on-month compared to Q2.

Expenses were well controlled, and both gross margin and net margin increased year-on-year in Q3. In the 2024Q3 quarter, the company's gross sales margin/net sales margin was 72.58%/35.12%, respectively, with year-on-year changes of +1.86pct/+1.31pct. In the 2024Q3 quarter, the company's sales/management/R&D/finance expense ratios were 17.79%/4.07%/13.16%/0.24%, respectively. The year-on-year change was -1.53pct/-2.19pct/-0.79pct/+0.07pp, further showing the company's cost reduction and efficiency results.

Major electrophysiology products are expected to be approved, and the amount of collected and released benefits can be expected next year. The pressure-sensitive ablation catheter and pulse ablation catheter in the company's pipeline are expected to be on the market in 25 years. With the renewal of the Fujian electrophysiological collection contract, the company is expected to seize foreign capital share through collection. The company currently has a high market share with ten adjustable bends, which has initially proved the company's R&D strength in the electrophysiology industry.

Profit forecast and investment rating: The company's performance for the first three quarters was in line with expectations. We maintained the 2024-2026 net profit forecast of 0.725/0.997/1.339 billion yuan. The PE valuation corresponding to the current market value was 52/38/28 times, respectively, and maintained a “buy” rating.

Risk warning: The risk that market competition will intensify and the development or promotion of new products will fall short of expectations.