Investment summary

The soft mirror market has broad prospects. Australia and China have broken through the blockade of foreign investment and achieved relatively rapid market share growth. There is a high incidence of gastrointestinal tumors in China. According to data from the National Cancer Center, the total number of cases of gastric cancer, colorectal cancer, and esophageal cancer in China in 2022 accounted for 25.77% of new cases of malignant tumors in China; while endoscopic biopsy is the “gold standard” for diagnosis. Driven by strong demand for early screening and advanced endoscopy manufacturing technology, Future Market Insights predicts that China's medical soft mirror market is expected to grow to 1.39 billion US dollars in 2033. Three Japanese companies, Olympus, Fuji, and Pentax, have long monopolized the market with advantages such as technology and channels, of which Olympus is the only company. Domestic soft mirror manufacturers continue to carry out R&D and innovation, and continue to achieve zero breakthroughs; according to medical recruitment data, in terms of sales volume, Australia and China's share of the digestive endoscopy market reached 11.88% in 2023, an increase of 7.20 percentage points over 2021.

The AQ-300 has significant differentiation advantages, and the sprint to a tertiary hospital came to fruition. As the first AQ-300 ultra-high-definition endoscopic system to break into the 4K field, it has achieved innovation and upgrades in terms of imaging, dyeing, handling, and intelligence. It is equipped with a 5LED light source, white light and 4 CBI multispectral dyeing modes, and is equipped with an oversized clamp treatment endoscope, 100x optical magnifier, duodenoscope, intelligent auxiliary equipment, and various high-performance fine mirror products, further enhancing the company's competitiveness in the high-end market. Relying on the continuous promotion of the AQ-300 system, the sales volume of the company's high-end series products in tertiary hospitals increased steadily; in 2023, the company's revenue increased 52.29% year on year, and net profit to mother increased 167.04% year on year, and the performance was impressive.

Focusing on R&D and innovation, new products are showing a blowout trend to build a driving force for future development. The company has carried out a systematic product layout around the field of endoscopic diagnosis and treatment, and has been adhering to underlying technological innovation for a long time; the company launched the AQ-100/AQ-200/AQ-300/AQ-200 Elite series products respectively in 2013/2018/2022/2023, and the speed of update and iteration is increasing, and functionality and operability have improved significantly. At the 2023 new product launch conference, Australia and China officially announced 17 fine mirror products, including bronchoscopes, nasopharyngoscopes, and percutaneous cholangioscopes; among them, there is no shortage of new products with “high gold content” such as the 1.8mm world's thinnest duplex soft mirror and 61% oversized clamp diameter endoscope. We believe that the three-pronged approach of “system upgrade iteration+complete mirror layout+abundant reserves in the research pipeline” is expected to drive the company's performance to continue to grow in the future.

Investment advice

We expect the year-on-year growth rate of the company's net profit from 2024-2026 to be 0.68%/31.64%/40.29%, respectively, and the PE corresponding to the closing price on November 19, 2024 will be 116/88/63 times, respectively; the first coverage gave it an “increase in holdings” rating.

Risk warning

Market competition risk; raw material procurement restriction risk; accounts receivable recovery risk.