The company issued an announcement on December 3. Its subsidiary Sannuo Biology (Hong Kong) Co., Ltd. signed a “Distribution Agreement” with A.MENARINI DIAGNOSTICS S.r.l. on November 29, 2024. The company mainly agreed on matters such as the other party's exclusive distribution of the company's first-generation and second-generation CGM customized models under a joint brand in more than 20 countries and regions in Europe. Considering the “Distribution Agreement”'s obvious contribution to the company's CGM's long-term sales in the European market, compounding the company's core BGM business and positive domestic sales of CGM, we are optimistic about the company's long-term development and maintaining “purchases.”

A.MENARINI DIAGNOSTICS, a partner with superior comprehensive strength and deep accumulation in the European diabetes care product market, was founded in 1976 and is registered in Italy. Its main business is R&D, production and sales of medical diagnostic products, and is one of the leading diagnostic companies in Europe. According to the company's official website, its core business layout is extensive, involving fields such as diabetes care products (which can provide comprehensive solutions for BGM, BGM blood collection needles, insulin pens, etc.) and professional diagnostic products (including hematology, clinical chemistry, urine analysis, immunology, etc.). In addition, the company has also been deeply involved in channel layout for many years. Its product sales network now covers 90% of Europe's population and has a good reputation among customers. At the same time, the company is also a subsidiary of the Menarini Group, which operates globally and has a large scale (turnover of 4.375 billion euros in 2023).

Strong alliances are expected to actively help the company CGM expand overseas markets

We believe that the “Agreement” fully demonstrates the excellent product strength of Sannuo CGM and is expected to lay a solid foundation for its overseas market expansion. The main reasons: 1) Excellent dealer qualifications: A. MENARINI DIAGNOSTICS's existing business involves diabetes care products and has solid channel capabilities, and Sannuo CGM products are expected to be grafted into their existing mature channels to achieve rapid release; 2) Long cooperation period: The contract period is 7 years (that is, 25-31 years), and can be renewed every 5 years under contract renewal conditions; 3) Wide coverage area: This cooperation will cover health insurance markets in more than 20 countries and regions in Europe; 4) There are many proxy products: dealers will sell Sannuo's first-generation CGM and second-generation CGM (if applicable) products.

Profit forecasting and valuation

We estimate that the first 2 years of the cooperation period are expected to complete medical insurance coverage, patient education, etc. in various parts of Europe relatively quickly. After accumulation and precipitation, the subsequent years are expected to enter a steep phase of expansion. We will temporarily maintain the 24-26 EPS forecast at 0.57/0.71/0.89 yuan. The company is a leader in the domestic blood sugar monitoring industry. Considering that CGM has good domestic sales and can be expected to be actively expanded overseas, the combined performance growth rate is faster (we expect the company's 24-26 EPS CAGR to be 21% vs. comparable Wind's consistent expected average of 17%), giving the company a 25-year target price of 37.87 yuan (previous value of 34.30 yuan, mainly considering the increase in the company's PE average value).

Risk warning: Sales of core products fall short of expectations, and core product development progress falls short of expectations.