Matters:

The company released its quarterly report for the year 24, 24Q1-3, operating income of 0.191 billion yuan (+30.98%), net profit to mother 0.053 billion yuan (+107.68%), after deducting non-net profit of 0.046 billion yuan (+108.37%). In 24Q3, operating income was 0.069 billion yuan (+14.70%), net profit to mother 0.02 billion yuan (+50.83%), after deducting non-net profit of 0.018 billion yuan (+44.96%).

Commentary:

Revenue has maintained a relatively rapid growth rate. 24Q3's revenue increased 14.70% year over year, mainly due to the company's orderly work around the business goals set at the beginning of the year. As marketing efforts increased, sales and revenue of various products increased.

New products continue to be released. The combined sales revenue of 2024Q1-3, which can absorb regenerated cellulose oxide and dural medical glue, exceeded 20 million yuan, an increase of nearly 90% over the same period last year. The company's absorbable regenerated cellulose oxide products broke the import monopoly and were selected for the Inner Mongolia Interprovincial Alliance for hemostatic material collection in 2023.

Currently, the company is planning to expand the indications of products that can absorb regenerated cellulose oxide to hemostasis, so as to compete with imported brands in all fields of surgery. The company's dural medical adhesive products can effectively improve medical quality, are in line with clinical trends, and the market capacity is expected to continue to expand.

Gross margin declined slightly, and cost optimization led to increased profitability. In 24Q3, the company's overall gross margin was 77.09% (-5.63pct), a slight decrease, which is expected to be affected by the implementation of collection. The 24Q3 company's sales expenses ratio was 15.28% (-9.42pct), the management expense ratio was 21.98% (+0.24pct), and the R&D expenses rate was 8.10% (-1.12pct). The optimization of the overall expense ratio led to an increase in the company's net profit margin of 7.10pct to 29.63%.

Continue to expand the product line. The company has become the only company in the field of neurosurgery in China that also has implantable medical device products such as artificial hard brain (spine) membrane patches, craniomaxillofacial repair and fixation systems, absorbable regenerated cellulose, and dural medical glue, covering the key implantable medical devices required for craniotomy surgery. The company will continue to maintain and expand its leading edge in original products and technology platforms, expand new departments, new indications, or improve the usage forms of original products in a targeted manner, and actively prepare long-term product research and reserves.

Investment advice. Based on 24Q3 results, we expect the company's 2024-2026 net profit to be 0.07, 0.1, and 0.14 billion yuan (24-26 forecast original values were 0.06, 0.08, and 0.12 billion yuan), with year-on-year increases of 70.7%, 45.1%, and 39.7%, corresponding EPS of 1.05, 1.52, and 2.13 yuan, respectively. Referring to comparable company valuations, we gave the company a 40-fold valuation in 2025, corresponding to a target price of about 61 yuan, maintaining a “recommended” rating.

Risk warning: 1. Price reduction exceeds expectations; 2. Post-harvesting volume falls short of expectations; 3. Promotion of new products falls short of expectations.