Core View

The company's 2023 results are in line with expectations, and new products are AQ-300 to be released rapidly. Looking ahead to 2024, the equipment renewal policy is expected to bring incremental contribution to the industry, driven by the AQ-300 of new products, the company's high-end models installed in the number of tertiary hospitals is expected to maintain high growth, to help the company achieve the full-year equity incentive performance appraisal target. On the one hand, since the AQ-300 was listed in November 2022, it has been in the stage of product polishing, performance optimization and academic promotion in the early stage, and the clinical recognition of product performance has gradually improved; on the other hand, due to the impact of the improvement of compliance requirements in the medical industry last year, the bid winning and installation of AQ-300 have been delayed, and bidding is expected to resume gradually this year. In addition, the company's new mirror species will be approved in 2023, and the product range will be further enriched, which is expected to enhance the company's core competitiveness in tertiary hospitals.

event

on April 9, 2024, the company released its 2023 annual report

according to the company's announcement, the company realized revenue of 0.678 billion yuan in 2023, up 52% year on year. The net profit attributable to the parent was 0.058 billion yuan, up 167 year on year. Net profit deducted from non-return was 0.044 billion yuan, up 361 percent year on year, basic earnings per share is 0.43 yuan/share. The profit distribution plan for 2023 is as follows: the company plans to distribute a cash dividend of 0.3 yuan (including tax) to all shareholders for every share. No capitalization of capital reserve, no bonus shares.

brief comment

the performance is in line with expectations, and the AQ-300 realizes rapid volume release

the company's 2023 revenue, net profit attributable to the parent and net profit attributable to the non-parent are 0.678 billion yuan, 0.058 billion yuan and 0.044 billion yuan respectively, up 52%, 167 and 361 respectively year on year. the net profit attributable to the parent after excluding share payment is 0.087 billion yuan, and the performance is in line with expectations, complete the previously established equity incentive assessment objectives. The profit side achieved a significant increase, mainly due to the company's low profit base in the same period last year. 23Q4 single-quarter revenue, home-to-home net profit and non-home-to-home net profit were 0.249 billion yuan, 0.013 billion yuan and 0.007 billion yuan, respectively, up 52%,-3% and 36% YoY, respectively.

by business, the company's revenue from endoscope equipment in 2023 was 0.622 billion yuan, up 59% year on year. Revenue from endoscopic diagnosis and treatment consumables was 42.57 million yuan, down 14% year on year. Competition in the domestic consumables market is fierce, and the company's revenue from consumables is relatively small. Revenue from endoscope maintenance services was 12.35 million yuan, up 235 percent year on year. In terms of domestic and foreign revenue, the company's domestic revenue was 0.564 billion yuan, an increase of 64% year-on-year; overseas revenue was 0.113 billion yuan, an increase of 12% year-on-year.

the medium and high-end models have achieved rapid breakthrough in tertiary hospitals. the AQ-300 of new products is expected to accelerate the release of the company's medium and high-end models (AQ-200 and AQ-300) mainframes and mirrors in tertiary hospitals by 2023. the number of installed machines (including winning the bid) in tertiary hospitals will reach 96 and 316 respectively. the number of installed machines (including winning the bid) in tertiary hospitals will reach 73, while the number of customers in tertiary hospitals that the company's AQ-200.

Looking forward to the first half of the year and the whole year, driven by the AQ-300 of new products, the number of tertiary hospitals served by the company's mid-to-high-end models is expected to continue to grow at a high rate, helping the company to achieve its annual equity incentive performance appraisal target. On the one hand, since the AQ-300 was listed in November 2022, it has been in the stage of product polishing, performance optimization and academic promotion in the early stage, and the clinical recognition of product performance has gradually improved; on the other hand, due to the impact of the improvement of compliance requirements in the medical industry last year, the bid winning and installation of AQ-300 have been delayed, and bidding is expected to resume gradually this year. In addition, the company a number of fine mirrors, split upper gastrointestinal endoscopy, double-focus endoscopy and other new mirror species in 2023 have been approved, the product range is further enriched, is expected to enhance the company's core competitiveness in tertiary hospitals. Recently, the State Council issued a notice to promote large-scale equipment renewal and consumer goods trade-in action plan, is expected to bring incremental contribution to the demand for medical equipment procurement, it is recommended to pay attention to the follow-up policy landing rhythm.

gross profit margin increased significantly and operating cash flow improved significantly

the company's gross profit margin was 73.78 in 2023, up 4.06 percentage points year-on-year, which is expected to be mainly due to the increase in the revenue share of high-margin mid-to-high-end models (AQ-200 and AQ-300). The sales expense rate was 34.27, up 4.66 percentage points from the same period last year, mainly due to the increase in employee salaries, repair costs and travel expenses; the management expense rate was 13.40, down 5.54 percentage points from the same period last year; the financial expense rate was -0.39, up 1.00 percentage points from the same period last year, mainly due to the decrease in interest income received in the current period; the research and development expense rate was 21.68, unchanged from the same period last year, research and development expenses increased by 52.26 year-on-year, mainly due to the increase in employee compensation and research and development materials. The net operating cash flow in 2023 was 37.41 million yuan, which was a big improvement from -41.9 million yuan in the same period of the previous year, mainly due to the increase in sales receipts; the inventory turnover days were 384.25 days, an increase of 14.29 days year-on-year, mainly due to the company's raw materials. Due to more stocking; the turnover days of accounts receivable were 85.06 days, an increase of 5.44 days year-on-year. The remaining financial indicators are basically normal.

the restricted stock incentive plan was launched to demonstrate the company's long-term development confidence. on October 12, 2023, the company issued the 2023 restricted stock incentive plan (draft). the incentive plan was granted for the first time to a total of 113 people, including directors, senior managers, core technical personnel, middle-level managers and other personnel that the board of directors thinks need to be encouraged. The performance evaluation index is operating income or net profit attributable to the parent (excluding the impact of share payment and goodwill impairment). According to the target of 100 attribution ratio at the company level, the income in 2024 shall not be less than 0.99 billion yuan or the net profit attributable to the parent shall not be less than 0.12 billion yuan, the income in 2025 shall not be less than 1.4 billion yuan or the net profit attributable to the parent shall not be less than 0.18 billion yuan, and the income in 2026 shall not be less than 2 billion yuan or the net profit attributable to the parent shall not less than 0.27 billion yuan. We believe that the equity incentive plan is conducive to fully mobilizing the enthusiasm of employees and also demonstrates the company's long-term development confidence.

AQ-300 the continuous optimization of product performance, continuous enrichment of lens types and continuous enhancement of core competitiveness, the company officially launched the next generation of 4K flexible endoscope system AQ-300 in November 2022, achieving breakthroughs in key performances such as optical magnification and lens handling. 4K optical magnifying lens body, variable hardness enteroscope, duodenoscope and other lens types have all been approved, of which duodenoscope has clear vision and larger clamp lifting angle, A better field of view is provided, so that the doctor can perform the follow-up operation efficiently. In terms of product performance, the company combined with clinical feedback on the AQ-300 series of continuous iteration, in the control performance, operating feel, stability and other aspects have met the clinical operation needs.

In addition, the company's new types of mirrors will be launched in 2023, including the new UHD series of duodenal mirrors, ultra-fine endoscopes and other fine mirror products, UHD series of bifocal endoscopes, split upper gastrointestinal endoscopes, etc., further enriching the company's types of mirrors. In addition, the company continued to promote the construction of the marketing system, and continuously deepened the depth and breadth of the company's product market coverage. At the same time, it adopted the method of combining online and offline, and carried out a series of special topics including endoscopy training courses, case sharing, and standardized diagnosis and treatment lectures around the AQ-300 series. Activities have received good feedback from experts, customers and distributors.

On the whole, driven by the improvement of product performance, the continuous enrichment of mirror types, the continuous strengthening of academic promotion and channel construction, and the support of policies such as encouraging domestic substitution and tightening of import argumentation, the company is AQ-300 expected to achieve rapid release in tertiary hospitals.

short-term optimistic about the company's new product launch to accelerate domestic substitution, medium-and long-term optimistic about the soft mirror track of the high business climate development in the short term, the company's flagship product AQ-300 performance significantly improved, the type of mirror body continued to enrich, is expected to achieve rapid release in tertiary hospitals. In the medium term, the company continues to lay out 3D digestive endoscopy, endoscopic robot system, disposable endoscopy and other new products, is expected to contribute to new profit growth points. In the long run, on the one hand, the demand for gastrointestinal cancer screening is strong, the current domestic penetration rate is still low, the company's domestic market share to increase space; on the other hand, the company actively explore overseas markets, long-term growth space is broad. We expect the company's revenue in 2024-2026 to be 1.015 billion yuan, 1.409 billion yuan and 2.001 billion yuan, respectively, up 50%, 39% and 42% year-on-year, and the net profit attributable to the mother in 2024-2026 is expected to be 0.119 billion yuan, 0.178 billion yuan and 0.277 billion yuan, respectively, up 105, 50% and 56% year-on-year. Maintain a "buy" rating.

risk tips

there are quarterly fluctuations in the bidding and purchasing of medical equipment industry. in the short term, some regional hospitals are waiting for the implementation of the replacement policy, the progress of equipment purchasing slows down, and the quarterly performance is less than expected. The risk of high inventory; The risk of technological innovation and R & D failure: the risk of core technology leakage; The risk of R & D personnel loss; market expansion and market competition risks (competition risks brought about by the subsequent listing of competitor Olympus's next-generation new product X1 in China); Risks of restricted procurement of some imported raw materials (the main suppliers of some raw materials such as lenses and light sources of the company's endoscope equipment are agents or traders of original manufacturers in the United States and Japan. In the future, if relevant foreign suppliers stop exporting the above-mentioned raw materials to domestic enterprises due to special trade reasons, it may have a certain adverse impact on the company's production and operation in the short term); quality control risk; tax preferential policy change risk; accounts receivable recovery risk (if the company's customers' future business situation or cooperative relationship with the company changes adversely, the risk of accounts receivable recovery will increase, thus adversely affecting the company's operating performance); exchange rate fluctuation risk; asset restructuring and impairment risk; product Certification Risk; Geopolitical Risk.