Summary of Aohua Endoscopy Conference Call Company Overview - **Company**: Aohua Endoscopy - **Industry**: Medical Devices, specifically Endoscopy Key Financial Performance - **Revenue**: In Q3 2025, Aohua Endoscopy achieved revenue of 162 million yuan, a year-on-year increase of 10.37%, continuing a trend of quarterly improvement [4] - **Net Profit**: The net profit attributable to shareholders was negative 15.33 million yuan, a decline of 148.44% year-on-year, primarily due to changes in product structure, increased strategic investments, and a high profit base from the previous year [4][2] - **Cost Structure**: Sales, R&D, and management expense ratios increased by 6.48, 4.28, and 2.34 percentage points respectively compared to the previous year [4] Product Innovation - **New Product Launch**: The flagship model AQ400 was launched online in September 2025 and is expected to be available for bulk shipment in November 2025. This model features advanced technologies such as 3D imaging and eDOF wide depth of field [2][9] - **Product Features**: AQ400 integrates a dual-lens imaging system, high spectral optical staining platform, and a simplified installation process, aiming to enhance image clarity and detail [7] - **Future Products**: The company plans to launch ultrasound endoscopy products in 2026 [3] Market Strategy and Expansion - **Domestic Market**: The company aims to penetrate over 200 tertiary hospitals by 2025, with significant progress reported in top-tier hospitals [20] - **Overseas Market**: The overseas business is growing, with new products like the 300 series being sold in Europe. However, the gross margin is lower than domestic sales [11] - **Brand Building**: Aohua is actively involved in training and educational initiatives to enhance brand influence and participated in the ERS European Respiratory Congress to showcase its products [8] Inventory and Cash Flow Management - **Inventory Management**: The company is on track with inventory reduction, expecting to reach reasonable levels by year-end, which will support the continued rollout of AQ400 [10] - **Cash Flow**: Cash flow from operating activities has improved compared to the previous year, indicating effective cash flow management [5] Competitive Landscape - **Market Dynamics**: The domestic procurement environment is recovering, with software sectors performing well. The competition is intensifying, especially in the grassroots market where price wars are prevalent [15][26] - **Future Outlook**: The overall demand for endoscopy products is expected to remain strong, driven by government initiatives to improve early diagnosis and treatment rates [18] Research and Development - **R&D Focus**: The company is concentrating on high-end innovative projects in the digestive and respiratory fields, with expectations of maintaining high R&D and sales expense ratios in the near term [12][27] - **Cost Management**: The increase in R&D and sales expenses is primarily due to rising personnel costs rather than new projects, with a focus on existing high-end projects [28] Conclusion - **Growth Expectations**: Aohua Endoscopy anticipates continued revenue growth in Q4 2025, supported by new product launches and increased procurement intentions from hospitals [23] - **Long-term Vision**: The company is committed to enhancing its product offerings and expanding its market presence, particularly in high-end hospitals and overseas markets [19][21]

Investment Logic - The company's inventory digestion is nearing completion, and the medical equipment upgrade is driving a recovery in bidding procurement, alongside accelerated expansion in overseas markets, indicating an upcoming inflection point in performance [1] - Starting in 2024, the execution of equipment upgrades will significantly delay in-hospital bidding rhythm, while the company is accelerating the launch process of AQ400, leading to a proactive inventory adjustment cycle, resulting in short-term performance pressure and temporary losses due to unmet equity incentive targets and cost disturbances [1] - By Q2 2025, the company's revenue has begun to grow quarter-on-quarter, and losses have narrowed, suggesting that overall performance is expected to improve steadily from the end of this year [1] Product Development and Market Position - The Olympus X1 endoscope has received approval, and a surge in high-end endoscope procurement is imminent, with the new AQ400 model expected to compete directly with X1 and offer 3D imaging advantages, facilitating rapid expansion in the high-end market of top-tier hospitals [2] - Olympus, as a global leader in flexible endoscopes, will see revenue growth in this region with the launch of its latest X1 model and related products, which are anticipated to trigger a procurement boom in the domestic market, particularly among top-tier hospitals [2] - The company's AQ400 high-end model, designed to compete with X1, features EDOF imaging performance and a 3D differentiation advantage, positioning it competitively to benefit from accelerated industry procurement demand and market share growth [2] Strategic Initiatives - The company is strategically developing an ERCP robot to address clinical pain points related to high radiation exposure, aiming to become the first in the world to launch this product between 2027 and 2028 [3] - There is a significant patient population in China with biliary and pancreatic diseases, with approximately 3 million patients needing ERCP procedures, but only about 300,000 procedures currently performed, indicating a low penetration rate of 10% compared to mature markets like the U.S. [3] - The ERCP robot can facilitate remote operations, physically separating doctors from radiation exposure, optimizing procedural workflows, enhancing surgical precision, and reducing the need for contrast agents, thereby alleviating patient burdens and shortening training periods for doctors [3] Financial Projections - The company is focusing on R&D innovation and high-end breakthroughs, with ongoing recovery in bidding procurement and inventory digestion, alongside the anticipated high-end endoscope procurement boom driven by Olympus X1's launch [4] - The AQ400 is expected to contribute significant incremental revenue due to its upgraded performance and 3D differentiation advantage [4] - The company’s exclusive ERCP robot is designed to address domestic clinical pain points, with clinical trials progressing smoothly and a projected launch between 2027 and 2028 [4] - Revenue projections for 2025-2027 are estimated at 753 million, 895 million, and 1.1 billion yuan, with year-on-year growth rates of 0.51%, 18.78%, and 22.97% respectively; net profit estimates are 10 million, 81 million, and 150 million yuan, with growth rates of -50.57%, 675.33%, and 85.96% respectively [4]

Core Viewpoint - The company reported a significant decline in revenue and a shift to net losses in the first half of 2025, with ongoing adjustments in domestic operations and successful expansion in overseas markets [1][2]. Financial Performance - In H1 2025, the company achieved revenue of 260 million yuan, a decrease of 26.36%, and a net profit attributable to shareholders of -41 million yuan, shifting from a profit of 6 million yuan in the same period last year [1]. - In Q2 2025, revenue was 137 million yuan, down 25.84%, with a net profit of -12 million yuan, compared to a profit of 3 million yuan in the previous year [1]. Business Segments - Domestic terminal bidding showed signs of recovery, but revenue was under pressure due to strategic adjustments in response to market trends and product iterations [2]. - The overseas business continued to expand, with successful product approvals and market promotions in multiple countries, driving revenue growth [2]. - In H1 2025, revenue from endoscope equipment was 240 million yuan (-29.6%), while revenue from endoscopic consumables increased by 40% to 10 million yuan, and maintenance services revenue rose by 122% to 10 million yuan [2]. Profitability Metrics - The overall gross margin decreased to 62.39%, down 9.07 percentage points, while the net margin was -15.71%, a decline of 17.29 percentage points [2]. - The increase in overseas revenue proportion contributed to the decline in gross margin, alongside higher expense ratios in sales, management, R&D, and finance [2]. Product Development - The company launched the new flagship model AQ400, enhancing its competitiveness in the high-end endoscope market, with expectations for increased domestic procurement demand following the approval of Olympus's new model [3]. - R&D investment in H1 2025 was 74 million yuan, accounting for 28.35% of revenue, leading to the launch of several new products and ongoing development of ERCP surgical robots, projected to be launched between 2027-2028 [4]. Revenue Forecast - Projected total revenue for 2025-2027 is 753 million, 892 million, and 1.057 billion yuan, with year-on-year growth rates of 0.51%, 18.40%, and 18.48% respectively [4]. - Expected net profit attributable to shareholders for the same period is 10 million, 80 million, and 143 million yuan, with growth rates of -50.57%, 671.67%, and 78.71% respectively [4].

Summary of Aohua Endoscopy Conference Call Company Overview - Aohua Endoscopy derives approximately 30% of its revenue from overseas markets, with a strong focus on expanding its business in Europe [2][4] - The company primarily focuses on the soft endoscope segment, particularly in the field of gastroenterology, while also dealing with some related consumables, which contribute a smaller portion of revenue [4] Industry Insights - Soft endoscopes are considered the gold standard for gastroenterology screening, benefiting from increased public health awareness and significant growth potential in diagnostic volumes [2][5] - The domestic production rate for soft endoscopes is currently below 20%, while Olympus holds over 70% market share, indicating substantial room for domestic replacements [2][5] Key Developments - Aohua's flagship model, the AQ400, received its registration certificate in June 2025 and won a bid for Suzhou's top-tier hospital in August, with a bid amount close to 6 million RMB [2][5] - The AQ400 is expected to be officially launched by the end of Q3 or Q4 2025, becoming a significant driver for revenue growth in 2026 [2][5] - Following the normalization of anti-corruption measures, the tendering process for medical equipment has returned to a regular pace, with an expected improvement in the volume of gastrointestinal endoscope tenders in 2025 compared to 2024 [2][6] Competitive Landscape - Olympus's latest model, the X1, has received domestic registration, which is anticipated to trigger a new wave of procurement [2][6] - Aohua's AQ400 is designed to compete directly with Olympus's X1, featuring innovative designs such as eDOF depth-of-field expansion and 3D static imaging, which may help capture additional market share during the upcoming replacement wave [2][6] Future Plans - Aohua plans to continue the iterative update of soft endoscopes while also venturing into emerging businesses such as ultrasound endoscopes and single-use endoscopes [2][7] - The company is also developing surgical robots for ERCP procedures to address clinical pain points, with an expected market launch between 2027 and 2028 [2][7] - In 2025, Aohua completed a share buyback and implemented an employee stock ownership plan, reflecting confidence in future performance [3][7] Conclusion - Aohua Endoscopy is well-positioned in the growing soft endoscope market, with strategic plans for product innovation and market expansion, particularly in the context of increasing domestic demand and potential for import substitution [2][5][7]