Xinhua Healthcare released its 2023 annual report. In 2023, the company achieved revenue of 10.012 billion yuan (+7.87% YoY); net profit to mother of 654 million yuan (+30.78% YoY); net profit of 619 million yuan after deduction (YoY +23.20%). On a quarterly basis, 2023Q4 achieved operating income of 2,695 million yuan (+2.42% YoY); realized net profit of 75 million yuan (-5.99% YoY); realized net profit of 64 million yuan after deduction (-9.74% YoY).

Opinion: Revenue side growth is in line with expectations, and profit side performance in Q4 was weak due to impairment. The share of revenue from high-margin manufacturing products increased, and the revenue structure continued to be optimized. Overseas development is beginning to show results, and international business revenue is growing rapidly. It is proposed to transfer 3 additional shares for every 10 shares and distribute a cash dividend of 5 yuan to give back high dividends to shareholders.

The annual revenue of breaking 10 billion dollars is in line with expectations, and the profit side declined in Q4 due to impairment. The company operates steadily, with annual revenue exceeding 10 billion dollars. Q4 The profit side declined due to impairment: 2023Q4's asset impairment losses were 32.54 million yuan, and credit impairment losses were 74.61 million yuan. Excluding the impact of impairment losses (excluding tax), 2023Q4 achieved net profit of 182 million yuan, achieving a year-on-year increase of 30.32% under the same caliber. After excluding the effects of impairment, the profit side performed well.

The share of revenue from high-margin manufacturing products increased, and the revenue structure continued to be optimized. In 2023, the company's medical device product revenue was 4.147 billion yuan (+9.15% year over year), of which experimental technology revenue was 477 million yuan (YoY +28.70%), surgical instrument revenue was 306 million yuan (YoY +14.47%); pharmaceutical equipment product revenue was 1.923 billion yuan (YoY +26.73%). The revenue share of medical device products and pharmaceutical equipment products increased from 44.65% in 2020 to 61.49% in 2023, and the revenue structure was continuously optimized.

With the “Belt and Road”, new breakthroughs have been achieved in international business. The company's internationalization progressed smoothly, achieving domestic business revenue of 9.663 billion yuan (+8.37% year-on-year) in 2023; international business (self-operated) revenue 2.

At 4.1 billion yuan (+55.36%), the gross margin of the international business reached 50.94% (+7.86pct year on year), which is much higher than the gross profit margin of the domestic business (26.53%). The company employs overseas territorial sales personnel in important markets such as India, and has offices in Indonesia, Vietnam, and Egypt, and has been approved to sign two CSSD and Indonesian Infusion projects for hospitals in Pakistan, which have promoted the rapid growth of the company's international business.

A high percentage of dividends give back to investors. In 2023, the company distributed a cash dividend of 5 yuan for every 10 shares to all shareholders, totaling 233 million yuan. The dividend rate was 35.68%. High dividends returned to shareholders, which is conducive to the company's sustainable development. At the same time, the company plans to transfer 3 shares for every 10 shares to all shareholders using its capital reserve.

Profit forecasting and investment advice. We expect the company's revenue for 2024-2026 to be 110.94 billion yuan, 122.84 billion yuan, and 13.541 billion yuan, respectively; net profit to mother will be 8.17 billion yuan, 10.09 billion yuan, and 1,232 billion yuan, respectively, up 24.9%, 23.5%, and 22.1% year on year; corresponding PE will be 13X, 11X, and 9X respectively, maintaining the “buy” rating.

Risk warning: risk of policy changes; risk of new orders falling short of expectations; risk of exports falling short of expectations.