Key points of investment

Performance:

2024Q1-3, revenue 1.36 billion yuan, YOY -2.91%, net profit to mother 0.39 billion yuan, YOY -9.9%. Net profit after deducting non-return to mother was 0.39 billion yuan, YOY -21.6%.

2024Q3, revenue 0.33 billion yuan, YOY -24.9%, net profit to mother 0.083 billion yuan, YOY -23.6%. Net profit after deducting non-return to mother was 0.05 billion yuan, YOY -65.5%.

Growth:

2024Q3 was affected by factors such as the slowdown in bidding and fluctuations in demand for new energy testing, and the company's 2024Q3 performance was still under slight pressure. Judging from the company's ongoing construction projects and production line layout, we believe that the company is currently in a critical window for strategic upgrading. In the short term, depreciation and amortization of fixed assets may put some pressure on the profit side after the construction project is consolidated, but in the medium to long term, the field involved in the company is growing rapidly, and the development of new products and new customers is also progressing in an orderly manner, helping the company move quickly from a flat panel detector supplier to an overall imaging solution provider, with strong medium- to long-term investment value.

New products and new customers continue to expand: According to the company's 2024H1 interim report, ① the company continues to actively explore upstream detector components and raw materials such as collimators (ASG), scintillators, and photodiodes (PD).

At present, the company has completed the development of some two-dimensional collimators for medical CT and introduction to domestic customers, entered the mass production and sales stage, simultaneously actively developed two-dimensional collimators for security CT, and has promoted a number of security CT customers to achieve mass production. At the same time, ASG for next-generation photon counting CT is also being actively developed, and great progress has been made so far. The scintillating crystals cesium iodide and cadmium tungstate have been developed and mass-produced and sold. GOS scintillation ceramics have completed the development of industrial and security applications and entered the mass production stage. GOS scintillators suitable for medical CT detectors have achieved breakthroughs in research and development, key indicators have reached leading international levels, and small-batch production has been achieved. The company has also made good progress in developing the carbon plate composite molding process, which can further optimize image performance, and has begun to be used in some of the company's detector products.

② In the field of high-pressure generators and combined radiation sources, the company has carried out product planning and achieved certain results in the fields of C-arm, DR, medical spiral CT, dental CBCT, bone age and bone density testing, medical mammography, portable multi-purpose X-ray, veterinary X-ray imaging equipment, industrial electronic testing, food safety testing, etc., and will be further extended to high-end high-power anode grounded CT high-voltage high-voltage generators, industrial and security tests.

③ In the field of ball tubes, 2024H1 has completed the development of microfocus tubes, transmission target tubes, dental tubes, and C-arm/DR tubes, of which microfocus tubes have been mass-produced. For CT tubes, the company has solved technical difficulties such as product simulation design, liquid metal bearing design and manufacturing, and material laser texture etching. Currently, the product is still under further development.

Overall, after years of planning and layout, the company has also completed the basic layout and achieved good results in the field of new core components such as high voltage generators, ray sources, and tubes. Various 90kV, 110kV, 130kV, 150kV and 180kV microfocus ray sources have entered mass production and sales, and completed the research and development of 225 kV and 240 kV microfocus ray sources, breaking the situation where products of the same type in this field are monopolized by imported equipment. It is worth noting that with 2024H1, many products from many major customers continued to grow well, successfully opened up the Korean dental CBCT market and began batch delivery. Comprehensive medical and industrial X-ray solutions were sold in small batches, and products such as C-arm detectors and breast detectors performed well. In addition, the company has made initial progress in new core components and solutions such as high-voltage generators and combined ray sources, with a revenue scale of nearly 0.1 billion yuan.

As mentioned in the company's in-depth report “The Leader of Digital X-ray Detectors in China”, the company is in a leading position in the industry in terms of cost advantages, customer quality, and technical reserves, and the rapid growth of the company's performance depends more on the speed of expansion of the new product pipeline than its marketing capabilities. We believe that since 2023, the company has gradually entered the fast track in terms of new pipeline expansion and R&D. As cooperation with traditional major customers gradually deepens and new production lines and new products continue to open the growth ceiling, the company's market position and global market share are expected to continue to rise steadily, and we continue to be optimistic about the company's medium- to long-term development potential.

Profitability analysis:

Gross margin and net profit margin: 2024Q1-3's gross margin was 54.3%, down 4.4 pct year on year, and net sales margin was 27.9%, down 2.4 pct year on year. We expect it is mainly related to changes in product structure. Expense rate for the period:

2024Q1-3's sales expense ratio increased 0.8 pct year over year, management expense ratio increased 1.4 pct year over year, financial expense ratio increased 1.5 pct year over year, and R&D cost ratio increased 5.1 pct year over year. Looking ahead to 2024-2026, we believe that as the company's low gross margin new products are scaled up and costs are diluted, the company's gross margin is expected to gradually rise, and the operating expenses ratio is expected to gradually decrease.

Operating cash flow: 2024Q1-3's net operating cash flow was 0.2 billion yuan, YOY 56.9%. Net operating cash flow accounted for 60.8% of net income from operating activities, a significant increase over the previous year.

Profit Forecast and Valuation:

We expect the company's EPS to be 4.16, 4.92, and 5.92 yuan in 2024, and the current stock price is 28.1 times PE in 2024. Considering the company's upstream manufacturing attributes, the downstream covers many of the world's leading machine manufacturers, and is developing new businesses in the dental and industrial fields smoothly. Furthermore, the company's new products and new pipelines are expanding smoothly, continuously opening up the growth ceiling, and has great potential for medium- to long-term development.

Risk warning

Volatility risks affecting equity incentives on apparent performance, risk of changes in industry policies, and risk of new product promotion falling short of expectations.