Investment highlights

Event: The company announced that in the first three quarters of 2024, the company achieved a total operating income of 1.083 billion yuan (+0.07%, indicating a year-on-year growth rate, the same below), a net profit attributable to the parent of 164 million yuan (+34.66%), and a net profit of 159 million yuan (+37.00%) after deducting non-attributable to the parent company, which exceeded our expectations.

The company's Q3 single-quarter profit increased sequentially. The revenue of Q3 alone was 333 million (+20.06%), down 17.36% month-on-month, the net profit attributable to the parent company was 71 million (+594.19%), an increase of 22.22% month-on-month, and the non-net profit was 70 million (+675.53%), an increase of 27.70% month-on-month, and the business trend continued to improve.

In Q3, the gross profit margin decreased slightly quarter-on-quarter, and the net profit margin increased quarter-on-quarter. In the single quarter of 2024Q3, the company's gross sales margin and net sales margin were 66.01%/21.72%, respectively, with a year-on-year change of +7.13 pct/+17.97 pct, respectively. We expect that the change in the company's gross profit margin is mainly due to the gradual clearing of the company's spine due to the impact of centralized procurement price reduction and return and exchange, and the company's market share will increase. In Q3 alone, the company's sales/management/R&D expense ratio was 28.04%/7.29%/8.27%, a year-on-year change of -19.64pct/+1.69pct/-0.72pct, and the sales expense ratio decreased significantly, resulting in a gradual recovery of net profit margin.

Earnings Forecast and Investment Rating: We are optimistic about the company's gradual increase in market share and steady growth in performance next year, and we maintain the company's net profit attributable to the parent company of 2.31/3.51/415 million yuan in 2024-2026, corresponding to the PE valuation of the current market value of 51/34/29 times respectively, maintaining a "buy" rating.

Risk Warning: Risks of intensifying market competition, lower than expected sales of domestic conventional business, slow clearance of channel inventory, and continuous impact of anti-corruption on the number of surgeries.