YUYUE MEDICAL(002223)INITIATION：BROAD PROSPECTS AND IMPROVING BUSINESS

　　Core views:
　　Yuyue is the leader of household medical devices in China with a leading edge in three core segments of respiratory oxygen generation, diabetes management and infection control. In 2022, the impact of a high base has been gradually priced in. Considering that the relaxation of China’s pandemic prevention and control will bring about demand related to continuous respiratory treatment, disinfection and infection control, its continuous blood glucose monitoring product in the field of diabetes management will be launched in 2023 as planned, and the growth of the Company’s core segments is highly visible, we expect Yuyue to achieve EPS of Rmb1.47/1.76/2.08 in 2022E-2024E. Using the discounted cashflow (DCF) valuation method, we assign a target price of Rmb40 and initiate coverage with a “BUY” rating.
　　Abstract:
　　The leader of household medical devices promotes diversified presence continuously.
　　Founded in 1998, Yuyue Medical is a domestic leader of household medical devices. The Company focuses on three core segments of respiratory oxygen generation, diabetes management and infection control and continues to develop cornerstone businesses such as household electronic testing and in vitro diagnosis (IVD). It also actively incubates high-potential businesses such as life support information (first aid), ophthalmology, and intelligent rehabilitation. In 2021, respiratory therapy/household electronic testing and IVD/rehabilitation and clinical devices/ infection control accounted for 38%/21%/18%/13% of the Company’s business, respectively. Yuyue has a concentrated and stable equity structure, and its subsidiaries owns rich business pipelines. In 2021, the Company posted total revenue of Rmb6.89bn (+2.5% YoY) and attributable net profit (ANP) of Rmb1.48bn, (-15.7% YoY), implying a short-term pressure on its earnings under a high base, however, we are optimistic about its stable growth going forward.
　　Core segments with complete coverage keep pace with the times, and respiratory & blood glucose products may create a second growth curve.
　　Yuyue makes strategic plans actively, and clarifies its core business, cornerstone business and high potential business. ① Respiratory treatment: The Company has built a complete set of respiratory treatment solutions. As the overseas Covid pandemic flared up repeatedly, this sector achieved growth of +86%/+16% YoY in 2020/21. Its oxygen concentrator has high product performance, ranking first in terms of market share for a long time. The export volume of these products increased significantly in 2020-21, and the product-related revenue increased by nearly 80% in 2021. The ventilator sector presents high growth headroom and low penetration rate, and the domestic replacement is continuing to upgrade. The relaxation of China’s pandemic prevention and control will likely boost the volume ramp-up of the sector. ② Diabetes management: China has the largest number of patients suffering from diabetes, with a wide coverage and rapid growth rate. Yuyue’s diabetes management business has achieved rapid growth in recent years, up 70% YoY in 2021. At present, the domestic replacement of traditional blood glucose monitor is accelerating, and the Company’s market share is likely to increase steadily. In 2021, the Company acquired POCTech to build a complete blood glucose management product system, bringing about opportunities in this field. The next-generation new product CT3 will be approved for sale in 2023, which will boast great improvement in performance. ③ Infection control: The Company’s disinfection and infection control brands enjoy high-quality brand recognition in clinical hospitals. We expect that the above product demands will continue to increase under the normalization of the Covid pandemic.
　　Two-pronged development of R&D channels, AED and ophthalmology may become the next growth driver.
　　Yuyue is a household medical device company that has been established for 20 years. The growth rate of cornerstone businesses has been stable, and the core segments are currently boosting the Company’s growth. In the long run, the Company still focuses on enhancing R&D and channel development capabilities, increasing R&D investment YoY, focusing on online sales channels to enjoy the dividends of the times, and incubating emerging businesses to find the next growth driver. ① Automated external defibrillator (AED): The penetration rate of AED is low in China, and the market is likely to usher in rapid growth driven by policies. In 2017, Yuyue acquired Metrax and marched into the first aid field. In Apr 2022, the Company’s domestic AED products were approved, and its presence and development in the first aid field were accelerated. ② Ophthalmology: The ophthalmology market in China has a high number of patients, and the demand for diagnosis and treatment is increasing YoY, but the resources are scarce, meaning the market has great potential for future development. In 2019, the Company acquired 66 Vision Tech and finished equity participation in the contact lenses subsidiary of Vizionfocus, and has basically completed the presence of ophthalmic medical devices, contact lenses and other ophthalmic consumer products.
　　Potential risks: New R&D and registration falling short of expectations; sales not up to expectations; pressure on the supply chain and production due to Covid flare-ups; unexpected policy changes.
　　Investment strategy: Yuyue is the leader of household medical devices in China with a leading edge in three core segments of respiratory oxygen concentrator, diabetes management and infection control. In 2022, the impact of a high base has been gradually priced in the areas of respiratory treatment and infection control. Considering that the relaxation of China’s pandemic prevention and control will bring about demand related to continuous respiratory treatment, disinfection and infection control, its continuous blood glucose monitoring product in the field of diabetes management will be launched in 2023 as planned, and the growth of the Company’s core segments is highly visible, we expect the Company to achieve ANP of Rmb1.48bn/1.77bn/ 2.09bn and EPS of Rmb1.47/1.76/2.08 in 2022E-2024E. Using the DCF valuation method, we assign a target price of Rmb40 and initiate coverage with a “BUY” rating.
【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。

   【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。