The income of the main business has declined across the board, and the sales force on credit has increased but the income generation is limited David Medical's stock price has been cut within a year

On the evening of October 25, David Medical announced its third quarterly report, deducting non-net profit by 104.8% year-on-year. The stock fell for three consecutive days and hit a one-year low of $11.45 on Oct. 28.

Stretching the time, in fact, since the highest point of 27.17 yuan in three years on October 29 last year, David Medical's stock price has fluctuated and fallen. As of today, David Medical closed at 11.91 yuan, which is already cut from the highest point.

Although the performance of the third quarterly report accelerated the decline of David Medical's stock price, the problems exposed by the third quarter report are the problems that David Medical urgently needs to solve.

The overall decline in revenue of the main business series products will be affected for a long time

David Medical's main business has always been the research and development, production and sales of infant care equipment. In 2018, David Medical began to expand into the new field of staplers. However, in the company's strategy, David Medical has repeatedly emphasized "basing on the main business, expanding and strengthening the stapler business", which also means that in the foreseeable future, baby care equipment will continue to be the main business of David Medical.

Analysis of a number of regular reports can be found that after entering 2021, the development of David Medical's main business has suffered setbacks, and the revenue of various series of products has declined across the board. The 2020 annual report shows that the revenue of the incubator series and the radiation incubator series maintained growth, and only the jaundice treatment series fell by 4.79% year-on-year.

The 2021 semi-annual report shows that the revenue of the incubator series decreased by 14.51% year-on-year; the radiation incubator series fell by 6.42%; and the jaundice treatment series fell by 16.43%. Among them, the revenue of the incubator series fell from 75.0099 million yuan in the first half of 2020 to 64.1276 million yuan, which was lower than the revenue of 80.5705 million yuan for the first time in the stapler and component series.

The decline in net profit was even greater, and in the first three quarters of this year, David Medical deducted non-net profit of 57.2986 million yuan, a year-on-year decrease of 51.49%. In the third quarter, David Medical's main business even lost money, deducting non-net profit of -3.1873 million yuan, compared with 66.3761 million yuan in the same period last year.

According to the 2021 semi-annual report, the demand of end customers of the company affected by the epidemic has further declined, resulting in the sales expansion of the baby care equipment business being blocked, and the sales revenue has declined. With the recurrence of the domestic epidemic, The main business of Dawei Medical will continue to be affected.

Increased sales on credit but limited income Generating Operating cash flow turned from positive to negative

According to the third quarterly report, as of September 30, 2021, David Medical's accounts receivable were 28.5035 million yuan, compared with 15.1125 million yuan at the end of the previous year, an increase of 88.61%. David Medical explained in the third quarterly report that it was mainly due to the increase in the credit period given by the company to agents.

However, although David Medical has increased its sales efforts on credit, its operating income has not increased significantly. In the first three quarters of this year, David Medical's revenue was 326 million yuan, an increase of 2.89% year-on-year, almost the same as the same period last year.

However, the relaxation of the credit policy has not only brought about an increase in the amount of accounts receivable, but also directly affected the operating cash flow of David Medical. From the beginning of the year to the end of September, the net cash flow generated by David Medical's operating activities turned from positive to negative, at -28.8032 million yuan, a year-on-year decrease of 240.23%, compared with 20.5397 million yuan in the same period last year.

In addition, in the first three quarters of this year, David Medical's advance payments also increased significantly. From 8.4676 million yuan at the end of the previous year, it rose to 22.0775 million yuan at the end of September this year, an increase of 160.73%. David Medical said that it was mainly due to the increase in prepaid materials, equipment and testing.

Industry insiders pointed out that if a large amount of money needs to be advanced to suppliers, it generally means that the status of the enterprise in the entire business ecological chain is not high or the credit is not good.

As for why the prepaid raw materials and testing costs have increased significantly, the staff of David Medical Securities Department said that they could not respond.