Event: The company released its 2024 annual report, achieving operating income of 750 million yuan (+10.54%) in 2024, net profit attributable to the parent company of 21 million yuan (-63.68%), non-net profit of -06 million yuan (from profit to loss), and operating cash flow of -79 million yuan. In 2024Q4, the operating income was 249 million yuan (-0.20%), the net profit attributable to the parent company was -16 million yuan (from profit to loss), and the non-net profit was -21 million yuan (from profit to loss).

The fluctuation of the business environment has put pressure on performance, and we are waiting for the recovery of terminal procurement vitality. In 2024, the company's net profit attributable to the parent company will decline significantly, and the non-net profit will turn from profit to loss, mainly due to the decrease in bidding activities in the domestic terminal market and the decline in total bidding and bidding, which has affected the company's domestic business growth. At the same time, the company increased the construction of the marketing system and improved the level of R&D investment, which increased the annual expenses year-on-year, of which: the sales expense rate/management expense rate/R&D expense rate were 33.38%/14.48%/21.83% (+3.16pct, +1.08pct, +0.15pct year-on-year). In addition, the company's gross profit margin in 2024 decreased by 5.66pct year-on-year to 68.12%, mainly due to the switch of accounting standards and the increase in the proportion of overseas business income with relatively low gross profit. In 2024, the company's net operating cash flow will turn from positive to negative, and the number of days of accounts receivable turnover will increase to 111.67 (+26.61), reflecting the impact of the slower than expected pace of bidding demand. Based on the large-scale medical equipment renewal business opportunities from 2025 onwards, the company, as a domestic soft mirror leader, is expected to achieve a significant recovery.

The expansion of the international market has accelerated, and the overseas revenue has achieved significant growth. In 2024, the company's overseas revenue will be 161 million yuan (+42.70%), accounting for 21.57% (+4.90pct), mainly benefiting from the further improvement of the company's overseas marketing network layout, and the smooth progress of product access and market promotion in many countries. At present, the company has set up a number of marketing support centers around the world to provide products and solutions for customers in Germany, the United Kingdom, South Korea, Thailand and other countries/regions, and has formed a certain brand awareness and market influence, creating a good foundation for the sustainable growth of global business.

Focusing on high-tech R&D and innovation, the competitiveness of products has been continuously strengthened. In 2024, the AQ-3004K ultra-high-definition endoscopy system will be smoothly promoted in large-scale medical terminals in China, and the sales of mid-to-high-end series products will increase steadily, with 137 units and 522 units of high-end models installed in tertiary hospitals and 116 installed units (including winning bids) in tertiary hospitals throughout the year. In 2024, the company will launch a number of new products such as hyperspectral platform, AQ-150, AQ-120 and other endoscopic systems, 640x cell endoscopes, 140x optical magnification endoscopes, etc., which further strengthen the competitiveness of the company's products with more comprehensive application scenarios.

Investment suggestion: Aohua Endoscopy is a leading domestic soft endoscope, with prominent technical and product advantages, continuous improvement of production line richness, rapid expansion of overseas markets, and domestic business is expected to benefit from the recovery of medical equipment procurement vitality. Considering that there is still some uncertainty in the pace of restoration of the external business environment, we adjust and forecast the company's net profit attributable to the parent company in 2025-2027 to 0.82/1.23/186 million yuan, a year-on-year increase of 289.61%/50.69%/51.05%, EPS is 0.61/0.92/1.38 yuan respectively, and the current stock price corresponds to a PE of 68/45/30 times in 2025-2027, maintaining a "cautious recommendation" rating.

Risk warning: the risk that the recovery of terminal procurement vitality is less than expected, the risk that the progress of new product development and listing is less than expected, and the risk of intensified competition in the industry.