Key investment points

Incident: The company announced that in the first three quarters of 2024, the company achieved total operating income of 6.028 billion yuan (-9.53%, indicating year-on-year growth rate, same below), net profit to mother of 1.532 billion yuan (-30.09%), and net profit of 1.274 billion yuan (-23.74%) after deducting non-return to mother. Revenue was in line with our expectations.

The company's Q3 revenue improved in a single quarter. Single Q3 revenue reached 1.72 billion (+2.21%), net profit attributable to mother 0.411 billion (-40.95%), after deducting non-net profit of 0.31 billion (-25.38%). Q3 is a traditional low sales season. Against the backdrop of repeated high bases of the epidemic in July and August of last year, it was not easy for the company to achieve positive revenue growth in a single quarter, showing a certain degree of performance resilience.

Due to the impact of asset disposal earnings in the same period last year, the company's net interest rate fell back to the normal range. In the 2024Q3 quarter, the company's gross sales margin/net sales margin was 50.32%/23.87%, respectively, with year-on-year changes of -0.92pct/-17.44pct. The company's gross margin remains relatively stable in the domestic macro environment.

In the first three quarters of 2023, the company's revenue from asset disposal from factory land collection and storage was 0.543 billion. In the first three quarters of this year, asset disposal revenue fell back to 0.005 billion, causing net interest rates to fluctuate greatly. Single Q3's sales/management/ R&D expenses rates were 15.44%/5.15%/6.72%, respectively, with a year-on-year change of +2.61 pct/+0.8 pct/+0.76pct. The sales expense ratio increased year-on-year due to changes in the pace of this year's online promotion compared to the previous period and the extension of the cycle.

We are optimistic about the company's blood sugar business and overseas market development potential. The company will launch two CGM models domestically from the end of the year to the first half of next year. The European market is also expected to obtain certification soon, and the blood sugar business will maintain strong growth potential in the future; the company's ventilators are expected to be launched in the US market soon, and there is plenty of potential for future growth in overseas markets.

Profit forecast and investment rating: Considering the current environmental pressure in the industry and increasing competitive pressure in the market, we adjusted the company's net profit to mother in 2024-2026 from 2.063/2.37/2.764 billion yuan to 2.013/2.305/2.609 billion yuan. The PE valuation corresponding to the current market value is 17/15/13 times, respectively. We are optimistic that the company's blood sugar sector and overseas market promotion will bring a second growth curve and maintain 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.