Net profit rebounded significantly year-on-year in the first half of the year. We are optimistic that the company's product matrix/overseas customer expansion 1H23 Lexin Medical achieved revenue of 3.85 billion yuan (YoY: -28.9%), of which Q2 revenue was 220 million yuan, an increase of 36.5%; 1H23's net profit was 7.825 million yuan (YoY: 1,208.4%), and Q2's net profit was 20.73 million yuan, turning a loss into profit. Due to 1) macro-influence, the conversion of new orders was slightly delayed; 2) strategic adjustments to some low-margin, high-asset projects, 1H revenue declined. Meanwhile, the company actively optimized its customer and business structure, reduced costs and increased efficiency, and net profit recovered year on year. In the first half of the year, the company's first 4G blood glucose meter was registered with the US FDA and entered overseas markets. In the future, the company continues to improve the medical product matrix and is expected to boost revenue through overseas marketing network construction, development of emerging market customers, and enriching health IoT products. The company's revenue for 23/24/25 is predicted to be 907/11.80/1,529 million yuan. Referring to the comparable company's 24-year wind consensus forecast of 2.3 times PS, optimistic about the company's active overseas expansion, the company was given 2.5 times PS valuation in 2024, with a target price of 13.7 yuan.
Effective optimization of the customer/cost structure is combined with lean management. Gross margin and net margin improved year on year by business, 1H23 household medical product revenue was 263.6 million yuan (YoY: -8.23%), gross margin decreased 2.03pp year on year; household health products revenue was 70.4 million yuan (YoY: -34.0%), gross margin increased 1.89 pp year on year; smart wearable product revenue was 14.8 million yuan (YoY: -86.8% year on year), gross margin decreased by 0.57 pp. 1H23's gross margin increased 5.35 pp to 28.34% year on year, and net profit margin increased 1.14 pp to 2.18% year on year. The main reasons for the significant improvement in profit margins are: 1) optimization of customer structure and product structure; 2) lean management reduces overall costs and increases efficiency, and strengthens control of manufacturing processes.
Equity incentive 23E/24E has a net profit target of 30/50 million yuan, and goal-oriented management showed confidence 7/27. The company issued a draft equity incentive plan for 2023, implemented equity incentives for the company's directors, senior management, and core employees, and proposed to grant 3.5 million restricted shares to incentive recipients. The equity incentive assessment years are the 2023 and 2024 fiscal years. The attribution coefficient is 50%. The default target values are net profit of RMB 30 million and RMB 50 million for 2023 and 2024, respectively.
Looking forward to the future, we are optimistic about the company: 1) Continuously improve the medical product matrix. The new product LINNER NOVA hearing aid in the acoustic sector has been accepted by the Guangdong Drug Administration and is expected to be further expanded; 2) expand new remote health management tracks such as ECG testing to accelerate the application of products in the field of chronic disease management; 3) strengthen the construction of overseas marketing networks, increase the frequency of participation in overseas exhibitions, and develop customer groups in emerging economies.
Give a target price of 13.7 yuan to maintain the buying rating
We have long been optimistic about the company's global business development and product structure optimization, and forecast the company's revenue for 23/24/25 to be 907/11.80/1,529 million yuan. In view of the company's revenue growth returning to the right track in '24, reflecting the results of the company's strategic layout, using the PS valuation method, referring to the comparable company's 24-year wind's unanimously expected average PS valuation of 2.3 times, the company was given 2.5 times PS valuation in 2023. The target price was 13.7 yuan (previous value: 14.91 yuan), maintaining the buying rating.
Risk warning: Increased competition in the health IoT market; risk of slow recovery of global 3C demand.