Key points of investment

Incidents:

In the first three quarters of 2024, the company achieved operating income of 0.64 billion yuan, up 14% year on year; net profit to mother of 0.11 billion yuan, up 13% year on year; net profit after deducting 0.11 billion yuan, up 24.45% year on year; 24Q3 alone, the company achieved revenue of 0.23 billion yuan, up 9.5% year on year, down 5.7% month on month; net profit to mother of 0.034 billion yuan, down 2.9% year on year. The decline in revenue and net profit growth rates in 24Q3 was mainly affected by weak domestic and foreign market demand.

Increased profitability on the materials and equipment side. In the first three quarters, the company's comprehensive gross profit margin was 53%, an increase of about 3.7 percentage points over the previous year. The gross margin for single 24Q3 was 53.4%, an increase of 3.3 percentage points over the previous year, and was basically the same from month to month.

According to the interim report, the gross margin of dental repair materials increased from 57.2% in the same period last year to 60.4%, and the gross margin of equipment increased from 25.89% in the same period last year to 29.27%, all with significant increases in profitability.

Overseas regions continued to expand, and sales expenses increased. In the first three quarters, the company's sales expenses were 0.13 billion yuan, an increase of 33% over the previous year. Single 24Q3 sales expenses increased 57% year on year, and the sales expense ratio reached 23%, the highest value in three quarters, mainly due to increased brand building expenses in domestic and foreign markets and an increase in sales staff; in the first three quarters, financial expenses were -5.54 million yuan, compared to -9.19 million yuan in the same period last year, mainly due to a decrease in exchange earnings; loss of 5.04 million yuan on credit, compared with 2.45 million yuan in the same period last year; investment income of 2.4 million yuan, a year-on-year decrease 6.31 million yuan; all of the above factors had a certain impact on net profit, which ultimately achieved net profit of 0.11 billion yuan to mother, an increase of 13% over the previous year.

Epitaxial expands implant business. The company completed the acquisition of Korea's Worland Holdings in May 2024, and is actively expanding the planting market and channel construction in China to promote the rapid development of the implant business. At the same time, it also brought more investment in marketing expenses, as well as an increase in inventory and goodwill. As of September 30, 2024, the company's inventory was 0.18 billion yuan, an increase of 74% year on year; goodwill was 0.054 billion yuan, which was 0 for the same period last year.

Profit forecasting and valuation

The company's revenue for 2024-2026 is expected to be 0.91, 1.07, and 1.28 billion yuan, respectively, up 17%, 18%, and 20% year-on-year; net profit to mother will be 0.17, 0.22, and 0.27 billion yuan, respectively, up 17%, 25%, and 27% year-on-year, with a compound growth rate of 23%. The corresponding PE is 26, 21, and 16 times, respectively, maintaining the “buy” rating.

Risk warning: international trade risk; health care industry policy change risk.