United Imaging's 9M24 revenue declined by 6.4% YoY to RMB6,954mn, with 3Q24 revenue down by 25.0% YoY to RMB1.6bn. This downturn was primarily due to a challenging domestic market environment, marked by stringent industry regulations and delays in equipment renewal projects. Attributable net profit in 9M24 decreased by 36.9% YoY to RMB671mn, with net profit margin falling by 4.7 ppts. Despite these near-term challenges, United Imaging maintained its R&D expenditures and actively pursued expansion in international markets, which impacted profitability in the third quarter. Looking forward, as the implementation of equipment renewal projects has gradually picked up pace, United Imaging's revenue and net profit margins are expected to significantly improve in 2025E, in our view.

Robust overseas growth momentum. In 9M24, United Imaging's overseas revenue grew 36.5% YoY to RMB1,404mn, accounting for 20.2% (+6.35 ppts) of total revenue. This accelerated growth continued into the third quarter, with revenues increasing by 51.7% YoY to RMB471mn. Strong performances were noted across North America, the Asia-Pacific region, and emerging markets. As United Imaging continues to enhance its overseas localization and service capabilities, we believe it is poised to strengthen its global competitiveness, better navigate geopolitical challenges, and sustain rapid growth internationally.

Strong growth in recurring revenue. In 9M24, revenue from maintenance services increased by 27.3% YoY to RMB967mn, accounting for 13.9% (+3.7 ppts) of the total revenue. With a global installed base now exceeding 31,000 units, United Imaging's service revenue contribution remains lower compared to global industry leaders like GE Healthcare (32.9% in 2023) and Philips (27.7% in 2023). However, with the expanding installed base and an enhanced global service network, we expect United Imaging's recurring revenue to continue its rapid increase, offering resilience against industry fluctuations.

Medical equipment renewal projects set to materialize. Mgmt. has noted that medical equipment renewal projects began implementation in early October, with multiple procurement activities underway. Additionally, some previously delayed equipment procurements, halted due to policy uncertainties, have now restarted. These developments lay the foundation for a recovery in United Imaging's domestic business in 4Q24 and 2025. However, due to stringent industry regulations, the procurement process has become more protracted. The installation and revenue recognition timelines for large equipment are also relatively long. Consequently, the positive impact of this procurement rebound is expected to be primarily reflected in 2025, in our view.

Maintain BUY. We expect hospital procurement to recover from 2025 and we are optimistic about the Company's long-term growth potential driven by the continued import substitution and strengthened global competitiveness. Therefore, we revise up the terminal growth rate forecast from 3.0% to 4.0%. Based on a 9-year DCF model, we adjust the target price to RMB162.81 (WACC: 8.3%, terminal growth rate: 4.0%).