Incident: On October 26, the company released its report for the third quarter of 2024: operating income of 1.525 billion yuan in the first three quarters of 2024, up 25.63% year on year; net profit to mother of 0.528 billion yuan, up 30.97% year on year; net profit after deducting 0.508 billion yuan, up 41.08% year on year, mainly due to increased sales scale, increased product profitability, profit growth due to cost reduction and fee control, and the decline in non-recurring profit and loss compared to the same period last year.

Among them, revenue for the third quarter of 2024 was 0.524 billion yuan, up 23.05% year on year; net profit to mother was 0.186 billion yuan, up 27.24% year on year; net profit after deducting non-return to mother was 0.18 billion yuan, up 53.18% year on year.

Electrophysiological collection contracts have been renewed well. Coronary channel collection helps products be admitted to the electrophysiology aspect: (1) In the first three quarters of 2024, Fujian Union Electrophysiological Collection provinces have successively carried out procurement agreement renewals for the second year. Judging from the contract renewal situation, the company's procurement volume of electrophysiological products was slightly higher than in the first year. (2) In August 2023, Beijing-Tianjin-Hebei “3+N” alliance electrophysiological collection, the company won bids for all products such as 10-pole standard measurement catheters and three-dimensional ablation catheters. Beginning in the first quarter of 2024, the Beijing-Tianjin-Hebei Alliance collection results began to be implemented one after another. As collection progresses, the company's products are expected to be released at an accelerated pace.

In terms of coronary intervention: (1) From the first quarter to the third quarter of 2024, the Fujian Union general product collection results began to be implemented one after another. During this collection, the company won bids for products such as a three-piece imaging kit and a microcatheter. (2) In April 2024, the Beijing-Tianjin-Hebei “3+N” Alliance medical consumables announced the selection results, and the company won the bid for coronary microcatheters and other products. Currently, channel consumables are still in the process of domestic substitution, and there is a large market space. Collection will help speed up the admission of the company's products locally and further improve product coverage.

PFA-related work is progressing smoothly. The company accelerated its entry into the field of atrial fibrillation. By the end of the third quarter of 2024, the company's pulse ablation catheter had entered the registration review stage and is expected to be launched in the first quarter of 2025. The company's PFA catheter is the only product on the market that integrates three-dimensional, pressure-sensitive, and proprietary PFA technology. Among them, 3D technology guarantees the safety of surgery and can reduce radiation exposure to surgeons and patients; the pressure sensing function improves the success rate of surgery and can reduce adverse events caused by catheter operation.

In addition, high-density measurement catheters and pressure-sensitive catheters have also entered the registration review stage and are expected to obtain registration certificates in the first quarter of 2025.

After the launch of new products such as PFA, high-density measurement catheters, and pressure-sensitive catheters, the company will fully advance into the field of atrial fibrillation. We are optimistic that the company's electrophysiology business is expected to maintain rapid growth.

Expense management achieved remarkable results during the period, and profitability continued to improve

In the first three quarters of 2024, the company's comprehensive gross margin increased by 1.31pct to 72.69% year-on-year. We expect this is due to increased product profitability and the company's scale effect. The sales expense ratio, management expense ratio, R&D expense ratio, and financial expense ratio were 17.73%, 4.43%, 13.30%, and -0.34%, respectively. The year-on-year changes were -1.47pct, -0.69pct, -0.57pct, and +0.03pct, respectively.

Under the combined influence, the company's overall net interest rate increased by 1.57pct year-on-year to 34.24%.

Among them, the comprehensive gross profit margin, sales expense ratio, management expense ratio, financial expense ratio, and overall net interest rate for the third quarter of 2024 were 72.58%, 17.79%, 4.07%, 13.16%, 0.24%, and 35.12%, respectively, with changes of +1.86pct, -1.53pct, -2.19pct, -0.79pct, +0.07pct, and +1.31pct, respectively.

Profit forecast and investment rating: We expect the company's 2024-2026 revenue to be 2.143 billion/ 2.799 billion/ 3.682 billion yuan, with year-on-year growth rates of 30%/31%/32% respectively; net profit to mother of 0.734 billion/ 0.956 billion/ 1.253 billion yuan, respectively; growth of 38%/30%/31%, respectively; EPS of 7.54 /9.82/ 12.87, corresponding to 48x PE in 2024 according to the closing price on October 30, 2024. Maintain a “buy” rating.

Risk warning: R&D risk of innovative technology and products, risk of loss of core technical personnel, risk of management of business channels, risk of product quality and potential liability, risk of market competition.