The company recently disclosed the three-quarter report. 2024Q1-Q3 revenue decreased by 7.30% year on year, net profit to mother decreased by 87.07% year on year, Q3 achieved revenue of 0.121 billion yuan, up 57.30% year on year, net profit to mother of 0.007 billion yuan, up 104.53% year on year. The Q3 performance growth rate was impressive. The inflection point in business performance has already appeared. The company increased investment in R&D, enhanced technical reserves and market competitiveness, and actively promoted the internationalization process to maintain the purchase rating.

Key points to support ratings

An inflection point in business has already appeared, and the performance growth rate for the third quarter of a single quarter was impressive. 2024Q1-Q3 achieved revenue of 0.333 billion yuan, a year-on-year decrease of 7.30%, net profit to mother of 0.009 billion yuan, a year-on-year decrease of 87.07%. Among them, Q3 achieved revenue of 0.121 billion yuan, a year-on-year increase of 57.30%, and net profit to mother of 0.007 billion yuan, an increase of 104.53% year-on-year. Net profit after deducting non-return to mother was 0.005 billion yuan, an increase of 675.10% year-on-year. The company's Q3 performance growth rate was impressive. Further expansion of internal terminal hospitals and channels led to an increase in the company's spine business and ultrasound surgery business. Furthermore, the merger of the French company Implanet also increased the company's operating income. Furthermore, after the company's spine business was gradually implemented, terminal surgery gradually became normalized, the number of deliveries increased steadily, and the increase in revenue from the ultrasound surgery business also led to an increase in profits.

The profit side is affected by asset impairment and credit impairment. In terms of profit, the company conducted an impairment test on September 30, and based on the impairment test results, it calculated impairment provisions accordingly for assets showing signs of impairment. As of September 30, 2024, the company accrued asset impairment losses and credit impairment losses totaling $13.8348 million in the first three quarters. This time, the accrued credit impairment losses were mainly accounts receivable bad debt losses and other bad receivables losses. Affected by asset impairment, the profit side in the third quarter of a single quarter was affected to a certain extent.

The international business is worth looking forward to. We believe that there is still a large gap in expectations in the market. According to the 2024 semi-annual report, the company has completed the acquisition of Implanet, a listed French orthopedic company, holding 74.56% of the shares, and obtained US FDA certification through Implanet's JazzSpinalSystem spinal system, further broadening the international high-end market layout.

Furthermore, the world's first operation on the Zeus spinal fixation system was successfully completed and launched in France. It is planned to be further promoted to the United States, the United Kingdom, Italy and Germany. We think the company's international business is worth looking forward to.

valuations

As the profit side was temporarily affected by asset impairment and credit impairment, we adjusted our profit expectations. The company's net profit for 2024-2026 is expected to be 0.058 billion yuan, 0.201 billion yuan, 0.273 billion yuan, EPS 0.23 yuan, 0.81 yuan and 1.10 yuan, respectively, and PE is 90.4 times, 26.1 times, and 19.2 times, respectively. We believe that the inflection point of the company's operations has emerged, the prospects for international business development are good, and the purchase rating is maintained.

The main risks faced by ratings

Risk of policy changes, risk of downstream channel expansion falling short of expectations, risk of exchange rate fluctuations.