The 1Q23 performance was under pressure for a short time. We are optimistic that the 1Q23 operating income/net profit of the beneficiary companies' 1Q23 operating income/net profit after deducting non-return mother's net profit for the full year of 23 was 1.09/0.53/053 million yuan, compared to -7.4%/-3.0%/-2.7%. We believe that it will still take time for the 1Q23 company's performance growth rate to recover mainly due to the impact of the epidemic. We expect the company's EPS for 23-25 to be $1.34/1.67/2.07.
Considering that the company's dental products are expected to benefit from the recovery of dental implants and the recovery of diagnosis and treatment, the major new product active biological bone may contribute new revenue drivers, we gave the company a PE valuation of 41x in 2023 (comparable to the company's 23 Wind's average expected average of 38x), corresponding to a target price of 55.00 yuan, maintaining the “buy” rating.
The 1Q23 R&D expense ratio increased sharply year on year, and the gross margin increased slightly year-on-year. The company's 1Q23 sales/management/R&D/financial expenses ratio was 23.31%/5.76%/10.84%/-0.30%, respectively -1.33/-0.39/+4.41/-0.10pct, respectively. The sharp increase in R&D expenses was mainly due to 1Q23's many R&D projects entering the clinical stage, and R&D expenditure increased accordingly. The company's gross margin for 1Q23 was 89.78%, +0.72pct year on year, and gross margin increased slightly year on year.
The dental business is expected to benefit from the recovery of medical treatment volume in '23 and the collection of dental implants in '22. As the epidemic still has a certain impact on domestic dental diagnosis and treatment, the year-on-year growth rate of dental product revenue has slowed slightly. Since dental diagnosis and treatment is selectable, we believe that demand suppressed in '22 is expected to be gradually released in '23. Coupled with a marked decline in overall fees after the implementation of dental implant collection, driving an increase in the number of surgeries, we expect the overall revenue growth rate of the company's dental product line to exceed 25% year-on-year in 2023.
The new product, active biological bone, can be expected in the future. Revenue from meningeal products is growing steadily. The company's new product, active biological bone, has clinically proven to be superior to traditional bone repair materials. Compared with foreign competitors, the first-mover advantage is obvious. It has a high R&D barrier. It is a variety with great potential. We expect revenue of 0.3 billion yuan in 23 years, and we are optimistic about its rapid release in the future. The competition pattern for the company's meningeal products is relatively stable. All six provinces won bids. We expect meningeal revenue growth to maintain a steady 5% increase in 23.
It is expected to benefit from the recovery of diagnosis and treatment and maintain the “buy” rating
According to the 1Q23 operating situation, we adjusted the growth expectations of various businesses. We expect net profit of 241/301/372 million yuan in 23-25 (previous value 255/327/416 million yuan), +30%/+25%/+24% compared to the same period last year. The current stock price corresponds to PE 34x/27x/22x, adjusting the target price to 55.00 yuan (previous value 59.53 yuan) to maintain the “buy” rating.
Risk warning: The progress of new products is not as good as expected; the volume of collected products is lower than expected.