Incident: The company released its report for the third quarter of 2024. In the first three quarters of 2024, the company achieved operating income of 2.012 billion yuan, a year-on-year increase of 15.31%, and achieved net profit of 0.451 billion yuan to mother, an increase of 16.70% over the previous year; realized net profit without deduction of 0.446 billion yuan, an increase of 18.11% year-on-year

On a quarterly basis, in the third quarter of 2024, the company achieved operating income of 0.679 billion yuan, a year-on-year increase of 13.44%, and achieved net profit of 0.141 billion yuan, an increase of 15.06% over the previous year; realized net profit deducted from non-return to mother of 0.14 billion yuan, an increase of 17.82% year-on-year. Thanks to the accelerated development of overseas markets, the company maintained rapid growth in a single quarter.

Expense side: The company's sales expense ratio for the first three quarters of 2024 was 23.11%, up 1.19pp year on year; management expense ratio was 12.38%, down 0.59pp year on year; R&D expense ratio was 5.54%, down 0.33pp year on year; financial expense ratio was 1.63%, up 1.99pp year on year, and various expense ratios were relatively stable. The company's gross profit margin for the first three quarters of 2024 was 67.64%, up 3.60pp year on year. Thanks to improvements in production optimization processes, gross margin increased steadily; net profit margin was 23.06%, up 0.42pp year on year.

The results of refined granular sales management have been remarkable, and the company is actively promoting overseas channel construction. Under policy trends such as consumables collection and medical rectification, the domestic market may be under pressure in the short term. The company continues to implement refined granular sales management, various marketing sub-centers and dealers work together to increase pure terminal sales, and continue to promote the expansion of disposable endoscopic direct visualization technology platforms to multiple departments and fields. We expect the domestic market to continue to grow steadily. In terms of overseas channel construction, the US subsidiary continues to consolidate the reform of the local sales team, set up a European regional headquarters in the European market, and expand the company's marketing channels through the acquisition of two channel companies in Portugal and Switzerland. At the same time, the company is also gradually speeding up localization in Australia, Thailand and other places. It is expected to accelerate overseas product marketing and promotion efforts in the future and help the overseas market grow rapidly.

R&D focuses on visualizing key projects, and continues to explore second business growth points. The company continues to focus on key visualization projects and is gradually entering the European, American, and Japanese hospital markets. At the same time, the company is actively exploring multiple application scenarios for disposable endoscopy to create more business growth points. In terms of basic consumables research and development, the company's many key R&D projects, such as next-generation three-arm clamps and ERCP upgrades, are progressing according to plan, and it is expected that they will continue to contribute to the company's performance growth in the future.

Profit forecast and valuation: According to financial data, we expect the company's endoscopic products to recover at an accelerated rate, and an increase in the level of superposition automation is expected to drive rapid profit growth. At the same time, policy changes may cause short-term uncertainty. We expect 2024-2026 operating income of 2.939, 3.603, 4.45 billion yuan (+22%, 23%); estimated net profit of 0.598, 0.744, 0.919 billion yuan (+23%, 24%, 23%). The company's current stock price corresponds to 2024-2026 23, 18, and 15 times PE. Considering the low localization rate in the minimally invasive diagnostic and treatment device industry, the launch of new products such as disposable cholangioscopy is expected to accelerate performance and maintain a “buy” rating.

Risk warning events: risk of changes in industry policies, increased risk of market competition, risk that public data used in research reports may be delayed or not updated in a timely manner.