1H24 results are in line with our expectations

The company announced 1H24 results: revenue of 6.64 billion yuan, -3.8% YoY; net profit to mother of 1.11 billion yuan, -7.5% YoY. Excluding the impact of epidemic prevention items, revenue was -2.2% YoY; Net Profit to Mother was -6.6% YoY. The results for the first half of the year met our expectations.

Development trends

All businesses are generally stable, and management maintains the 2024 revenue growth guideline of 5-10% year-on-year. Looking at 1H24's business segments: 1) Sales of medical devices were -7.7% YoY, -9.1% month-on-month. Sales of major products such as syringes, infusion devices, and implantation needles all had a steady year-on-year increase of 5-15%, but the collection of some products led to price declines; 2) Orthopedic revenue was -6.5% YoY, +57.1% month-on-month. The impact of collection was basically cleared in the first half of the year. Sales of spine, trauma, and joints increased 20-40% in the first half of the year, and new products such as sports medicine and artificial bone grew faster; 3) Revenue from pharmaceutical packaging grew faster than +10.0%. +21.3%, pre-filled syringe Sales volume +27% YoY, syringe sales +7% YoY; 4) Interventional revenue +6.5% YoY, +28.2% month-on-month, with a slight year-on-year decrease in the Chinese market; 5) Revenue from blood management -19.7% YoY and -19.0% month-on-month. Despite the year-on-year decline in the company's overall revenue, 1H24 has seen a 4.9% month-on-month increase (in terms of comparable caliber after excluding epidemic prevention products). The management maintained the guideline of 5-10% year-on-year revenue growth for the full year of 2024. We expect 2H24's businesses to continue to show a good month-on-month recovery trend. 1H24's net interest rate to mother was 16.7%, an increase of 4 ppt over the previous month. The company 1H24 continues to maintain a 40% dividend ratio and is not expected to fall below this ratio in the future.

Domestic market share has increased, and internationalization has accelerated. As collection progresses, we expect that the market share of medical consumables will continue to be concentrated at the top. The company estimates that its general consumption business and orthopedic business will increase by 5-10 ppt after collection. For the domestic market, the company focuses on market share indicators, while also continuously developing overseas markets. 1H24's overseas revenue was 1.72 billion yuan, +6.7% year over year, of which revenue from overseas products was more than 20% year over year. The share of overseas revenue increased 2.5ppt to 25.9% year over year. The company actively promotes the integration capabilities of overseas platforms such as Ailang, Radsos, GHC, etc., to accelerate the release of synergy effects. The company set up an office in Singapore to strategically explore the potential of the Southeast Asian market.

Profit forecasting and valuation

Considering factors such as pressure on medical device procurement, we lowered our 2024/25 core net profit forecast by 3%/3% to 2.154/2.365 billion yuan. The current stock price corresponds to 8/7 times the 2024/25 price-earnings ratio. We maintain our outperforming industry ratings. Considering the pressure on the pharmaceutical sector of Hong Kong stocks, we lowered our target price by 15% to HK$6.4, corresponding to the 2024/25 price-earnings ratio of 12/11 times, with 49% upside compared to the current stock price.

risks

The price reduction of collection exceeded expectations, internationalization fell short of expectations, the competitive landscape deteriorated, and the promotion of new products fell short of expectations.