The company released its three-quarter report for 2024. The first three quarters of 2024 achieved a 13.57% year-on-year increase in operating income and a 16.56% year-on-year decrease in net profit to mother, putting pressure on the profit side in the short term. The company continues to increase investment in R&D, and continues to promote the expansion of R&D pipelines and the transformation of innovative achievements. With the gradual advancement of new product launch and promotion work, the company is optimistic about the increase in performance in the fourth quarter. Maintain a buy rating.

Key points to support ratings

Revenue growth was stable in the first three quarters of 2024. In 2024Q1-Q3, the company achieved operating income of 0.292 billion yuan, a year-on-year increase of 13.57%; net profit to mother was 0.059 billion yuan, a year-on-year decrease of 16.56%; net profit after deducting non-return to mother was 0.055 billion yuan, a decrease of 10.85% year-on-year. Looking at a single quarter, Q3 achieved operating income of 0.102 billion yuan, a year-on-year increase of 13.25%. Net profit to mother was 0.024 billion yuan, a year-on-year decrease of 10.04%; net profit after deducting non-return to mother was 0.023 billion yuan, a decrease of 5.83% year-on-year.

The main business is growing steadily, and we are optimistic about the room for future performance growth. The company gives full play to its brand advantages, actively expands market areas not yet covered, consolidates competitiveness in core markets, and achieves steady growth in main business revenue. In the first three quarters of 2024, the main business revenue in the three segments of heart valve replacement and repair treatment, congenital heart implantation treatment, and surgical soft tissue repair increased by 14.78%, 10.82%, and 14.33%, respectively. Among them, artificial biological heart valves achieved revenue of 87.4925 million yuan, an increase of 15.54% year on year. As the marketing and promotion of new products such as vascular biological supplements and interventional aortic valve systems advance gradually, such as online entry into hospitals, etc., we expect that sales of related products in the fourth quarter will be expected to increase the company's revenue growth rate, and we are optimistic about the room for future growth in the company's performance.

Investment in R&D continues to be increased, and new products are expected to bring new increases in performance. In 2024, Q1-Q3 R&D expenses reached 0.109 billion yuan, a year-on-year increase of 72.77%, accounting for 37.28% of revenue. Affected by a high level of R&D investment, the implementation of R&D results is accelerated. The products under development are progressing smoothly.

Vascular biological supplements, cardiac valve biological supplements, and interventional aortic valve systems have been approved one after another; interventional valve systems are expected to be finalized soon; collagen fiber filler-I and ophthalmology biological supplements have been registered; interventional pulmonary valve, digestive surgery biological supplements, etc. are about to be submitted for product registration; animal tests on split interventional valve systems are progressing smoothly. The company continues to expand its R&D pipeline layout and is optimistic about future long-term development.

valuations

Net profit due to mother for 2024-2026 is expected to be 0.164 billion yuan, 0.229 billion yuan, and 0.322 billion yuan, EPS is 1.20 yuan, 1.67 yuan, and 2.35 yuan, respectively, and PE is 102.7 times, 73.7 times, and 52.4 times, respectively, maintaining the purchase rating.

The main risks faced by ratings

Risk of product development failure, risk of product sales falling short of expectations, risk of volume procurement policy changes.