Incidents:
The company released the 2023 Annual Report and the 2024 First Quarter Report. The full year of 2023 achieved operating income of 4,059 million yuan (YoY +2.69%), net profit of 284 million yuan (YoY -36.31%), after deducting non-net profit of 293 million yuan (YoY -16.79%);
In a single quarter, 2023Q4 achieved operating income of 1,023 million yuan (YoY -7.06%), net profit to mother of 0.34 billion yuan (YoY -155.14%), deducting non-net profit of 0.47 billion yuan (YoY -184.70%); 2024Q1 achieved operating income of 1,014 million yuan (YoY +14.92%), net profit to mother of 81 million yuan (YoY +35.51%) in a single quarter, net profit of 78 million yuan (YoY +21.48%).
Comment:
1. The company's core business performance is in line with expectations. Losses from overseas subsidiaries put pressure on profits in the short term, and we are optimistic that it will continue to improve month-on-month. In 2023, the company's main business, the blood sugar monitoring system, achieved revenue of 2,873 billion yuan, an increase of 6.21% over the previous year. Excluding continuous blood sugar monitoring (CGM), the cornerstone business, traditional blood sugar monitoring (BGM), achieved a growth of more than 10%. In addition, the blood fat detection system, glycated hemoglobin detection system, and iPOCT monitoring system business also achieved steady growth of 20.14%, 15.32% and 6.35% respectively. The company's core business performance was in line with expectations. On the profit side, it was mainly affected by CGM's large investment in the early stages of listing, losses from overseas subsidiary Trividia, and impairment of goodwill. Among them, CGM has lost more than 100 million yuan on the profit side due to early sales investment and continuous R&D expenses since its launch in April 2023. Due to Trividia's main BGM business, the expansion of CGM's health insurance coverage in the US had an impact on the original BGM market, leading to operating losses and impairment of goodwill, affecting the company's profit side - 180 million yuan. 2024Q1, Trividia has begun to recover month-on-month and achieve profits. With the strengthening of collaboration with the company and adjustments in market strategies, it is expected to maintain a month-on-month growth trend and turn losses into profits throughout the year.
2. Iterative upgrades + global certification, and CGM, the second growth curve, is expected to start global expansion. In 2023, the company will continue to increase R&D investment to promote the iterative upgrading of CGM, further improving its ease of use and comfort on the basis of the world's leading i3/h3 MARD value. The second-generation CGM registration application was accepted in early April this year, which is expected to accelerate the release of products after launch. At the same time, the company has also completed the registration of CGM in Indonesia, the EU MDR, the United Kingdom, Thailand, Morocco, and Italy. Clinical trials in the US are also progressing in an orderly manner. It is expected to be approved by the FDA in mid-next year, and it is expected to collaborate with Trividia's global blood sugar monitoring market channel network to launch global expansion.
2024Q1 and CGM have sold 60 million yuan, and losses are expected to gradually narrow as the number of new customers and activations continues to rise.
Profit forecast: We expect the company's 2024-2026 revenue to be 47.12, 53.93, and 6.118 billion yuan, respectively, with year-on-year growth rates of 16.08%, 14.47%, and 13.45% respectively, and net profit to mother of 4.58, 5.82, and 660 million yuan respectively. The year-on-year growth rates are 61.07%, 27.02%, and 13.37%, respectively, corresponding to the current stock price PE, which is 29, 22, and 20 times, respectively, maintaining the “recommended” rating.
Risk warning: CGM sales fall short of expectations, progress in new product development falls short of expectations, market expansion falls short of expectations, subsidiary performance falls short of expectations, increased market competition, risk of industry policy changes, risk of impairment of goodwill, risk of changes in the international environment, etc.