Xiangcai Securities: Maintain a "buy" rating on the orthopedic consumables sector and pay attention to changes in company performance after the normalization of centralized procurement.

Xiangcai Securities released a research report stating that the basic coverage of centralized procurement for orthopedic consumables has been achieved, and product prices are at low levels. The risk of price reduction from large-scale centralized procurement has been basically eliminated. Additionally, with the gradual increase in market penetration and the steady promotion of domestic alternatives in various sub-fields, it is beneficial for domestic enterprises to expand their market share and accelerate sales growth. It is expected that the orthopedic sector of domestic bone surgery will gradually achieve performance recovery by 2025 and improve its fundamentals. In summary, the orthopedic consumables sector is given a "hold" rating, with a focus on domestic leading manufacturers in the orthopedic field and monitoring the marginal changes in the performance of enterprises after normative centralized procurement. Xiangcai Securities' main points are as follows: The increasing elderly population is driving the expansion of clinical demand for orthopedic consumables. The treatment needs generated by general hospitalized patients are an important source of market for medical consumables and pharmaceuticals. Musculoskeletal diseases account for the fifth highest proportion of all causes of hospitalization for the elderly. With the deepening of aging in China, the number of patients with orthopedic diseases will continue to rise, leading to an expansion of demand for orthopedic consumables. The industry has experienced comprehensive centralized procurement, and future price pressures will gradually be absorbed. In recent years, the frequent introduction of laws, regulations, and industrial policies in the medical device industry has had a significant impact on orthopedic consumable companies and the industry, mainly including "volume-based procurement" for high-value orthopedic consumables, the "two-ticket system", and "DRGs medical insurance fee control". Among them, the national organization's volume-based procurement of medical consumables has the widest coverage, with the greatest impact on clinical price in the orthopedic consumables segment. Currently, commonly used orthopedic consumables in clinical settings such as artificial joints, spines, and sports medicine have all undergone national centralized procurement, and trauma consumables have also undergone regional procurement, leading to an overall price reduction in the industry. In addition, centralized procurement has also brought opportunities for domestic manufacturers to expand their market share. After the gradual fading of the high price base effect before centralized procurement, orthopedic consumable companies that have obtained a larger market share in volume-based procurement are expected to gradually absorb the pressure and achieve better performance margins. Domestic consumable enterprises are actively seeking new performance support points, and some leading enterprises have reached a turning point in performance. In the first half of 2024, the overall performance of the orthopedic consumables industry continued to be under pressure, but since the second quarter, the performance pressure on listed orthopedic consumable companies from centralized procurement has gradually been absorbed, with some enterprises showing signs of marginal improvement in performance. In the third quarter, the overall recovery of performance in the orthopedic consumables segment was more significant, with most orthopedic consumable companies starting to achieve year-on-year revenue growth in the third quarter, and the growth rate was significant. In addition, under the pressure of centralized procurement, domestic orthopedic consumable companies are also actively exploring new growth points, such as increasing their efforts to expand into overseas markets, which may bring additional incremental performance in the future. Risk Warning: (1) Risks of new product research and development progress falling short of expectations; (2) Risks of orthopedic consumables prices continuing to decline under further pressure from medical insurance payments; (3) Risks of increased market competition level.