Incident: The company announced its 2022 annual report, achieving revenue of 9.282 billion yuan (-2.11%), net profit of 503 million yuan (-9.68%), and net profit of 505 million yuan (+31.47%) of non-return mother's net profit (+31.47%). The decline in revenue was mainly due to the decline in revenue after Shanghai Taimei terminated its business agency cooperation with Johnson & Johnson Healthcare on June 30, 2021. On a quarterly basis, Q4 companies achieved operating income of 2,631 million yuan (+23.69%), net profit of 83 million yuan (-30.28%), net profit of 71 million yuan (-7.90%) after deducting non-return net profit of 71 million yuan (-7.90%). Sales expenses and R&D expenses increased in the fourth quarter. At the same time, the company calculated asset impairment losses of 30.74 million yuan and credit impairment losses of 26.62 million, which had a great impact on profits in the fourth quarter.
Comment:
The revenue structure has been significantly optimized, and profitability has steadily increased. The company concentrated its strengths and focused on developing manufacturing products in sectors such as medical devices and pharmaceutical equipment. In 2022, the share of medical device manufacturing products and pharmaceutical equipment products in the main business revenue increased to 59%, an increase of 8 pcts over the previous year. At the same time, the company strengthened the assessment of financial indicators such as gross margin, strictly controlled costs, and improved quality and efficiency. In 2022, the company's gross margin was 26.44%, an increase of 2.19 pcts over the previous year. Among them, medical device manufacturing and pharmaceutical equipment, the two major industries in focus increased 2.59 pcts and 1.22 pcts year-on-year. The company's work to clean up inefficient and ineffective assets continues. The shares of Tangshan Hongxin Hospital and Shanghai Chenwei Zhongde Hospital Management Co., Ltd. were listed and sold in 2022. We think the company's business will be further focused in the future.
Medical devices have fully blossomed, and profit margins for pharmaceutical equipment have improved. Medical device sector: Sensory control benefits from the post-construction cycle of new infrastructure while continuing to promote domestic substitution. Key progress has been made in many R&D projects for radiology diagnosis and treatment, continuous optimization of product structures for surgical cleaning products, and a 34% increase in new contracts for laboratory animal equipment. Pharmaceutical equipment sector: Chengdu Yingde, a core biopharmaceutical equipment subsidiary, achieved a net profit of 17.91 million yuan in 2022, and the profit margin increased to 3.70% from 0.42% in '21. It is worth noting that Britain and Germany achieved a breakthrough in internationalization. Well-known blood product manufacturers within the United Nations signed equipment and technology contracts for blood product production with foreign companies to develop and produce blood products.
The operation of capital helps the development of the main business, and the issuance of incentives binds collective interests. In June 2022, the company's application for a non-public offering of shares was approved and approved by the China Securities Regulatory Commission. In February 2023, the company issued 54.9 million additional shares at 23.38 yuan/share, and Shandong Yiyang Health, the largest state-owned shareholder, subscribed to 179.64 million shares (accounting for 32.72%). The capital raised was mainly to increase the production capacity of new products or core products and achieve product structure upgrades, etc., to help the company continue to expand on a large scale. In terms of employee incentives, in addition to incentives from the parent company, the plan to implement incentives for the technical talents, business executives, directors and middle and senior management personnel of the subsidiary Xinhua Surgical Devices has been approved by the state-owned assets management unit. We believe that an adequate incentive mechanism is conducive to mobilizing the enthusiasm of the company.
Profit forecasts. We expect the company's net profit from 2023-2025 to be 721 million yuan, 920 million yuan and 1,080 million yuan, up 43.4%, 27.6%, and 17.5% respectively over the previous year. The corresponding EPS will be 1.54 yuan, 1.97 yuan and 2.31 yuan respectively. We believe that the company will benefit from new pharmaceutical infrastructure and the incremental demand of the pharmaceutical machinery industry. In the future, the two major sectors of medical devices and pharmaceutical equipment will develop rapidly. Product upgrades and structural optimization are expected to further enhance the company's profitability. Referring to comparable companies, we gave the company 18-23X PE in 2023, corresponding to a reasonable value range of 27.78-35.50 yuan, continuing to maintain the “superior market” rating.
Risk warning: risk of new orders falling short of expectations; risk of increased market competition; risk of policy regulation.