The orthopedic medical supply sector has witnessed a remarkable turnaround in performance since the beginning of 2024, with two leading publicly listed companies showing significant improvement compared to prior yearsSeveral factors contribute to this trendFirstly, the pricing stabilization observed in centralized procurement is a crucial aspect; many products even saw their bidding prices increaseSecondly, the accelerated process of domestic market substitutions has allowed local companies to capture a larger share of the marketAdditionally, both companies have made strides in international markets, leading to considerable growth in overseas revenue.

One of the frontrunners, Dabo Medical (002901.SZ), recently announced its 2024 earnings forecast, predicting a net profit of 350 million to 390 million yuan, representing an astounding year-on-year increase of 493.5% to 561.33%. When excluding non-recurring expenses, the projection for the recurring net profit stands between 280 million to 320 million yuan, showcasing an incredible growth rate of 2552.75% to 2931.71%. Following the announcement, the company's stock price surged and hit its daily limit up, continuing to rise by 10.7% over the following trading daysBy January 17th, the market capitalization reached 14.7 billion yuan.

In stark contrast, the prior two years were tumultuous for Dabo Medical, where revenues saw a decline of 28.09% in 2022 and a modest growth of 6.9% in 2023. Furthermore, the company's net profit showed a concerning drop of 85.24% and 88.45% in the same years respectivelyHowever, 2024 marks a significant turning point as Dabo Medical has observed a considerable recovery, with its stock price appreciating by 62.8% from the lows recorded in August 2024.

Dabo Medical specializes in orthopedic implants, producing a diverse range of products, including trauma-related, spinal, and joint implants

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Alongside Dabo, Weigao Orthopedics (688161.SH), another key player in the orthopedic materials landscape, has reported similar improvements; the revenue changes for the years 2022, 2023, and the first three quarters of 2024 were recorded at -4.44%, -37.63%, and 0.07% respectivelyTheir non-recurring net profit changes were recorded at -21.43%, -81.68%, and a robust gain of 37% as of the latest reporting date.

The upswing in performance seen in these orthopedic supply companies begs an important question: What factors are attributed to this remarkable recovery in 2024? Could this represent a significant inflection point for their earnings potential?

Central to this turnaround is the stabilization of pricing alongside an uptick in sales volumeBeginning in 2021, the Chinese government initiated a series of centralized procurement policies targeting orthopedic medical suppliesTo date, various segments such as spinal and sports medicine supplies have completed their first phase of centralized procurement, while trauma and joint categories have initiated the renewal phase for procurement standards.

After the initial rounds of bidding, a temporary decrease in both market scale and profit margins impacted the orthopedic sector, resulting in declines for both Dabo Medical and Weigao Orthopedics in terms of performanceHowever, as the centralized procurement policy not only solidified over time but began to stabilize prices, both companies have seen revitalized salesFor instance, during the trauma category's renewal phase, the prices set by leading enterprises were, notably, higher than those during the first bidding round, while the average price drop in the joint category renewal was recorded at a mere 6%.

Moreover, the centralized procurement has catalyzed the rapid process of domestic substitutions

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Historically, the market for orthopedic implants in China had been heavily dominated by foreign brandsGradually, however, domestic companies have been able to improve their shares across various medical categories, indicating a shift in market dynamics.

Additionally, as procurement advances, leading players are seizing opportunities to increase market shares due to their stronger distribution networks, while smaller firms with limited capabilities are facing difficulties and may be compelled to exit the marketConsequently, the concentration of domestic brands is noticeably increasing; statistics indicate that by 2023, the market concentration for local orthopedic brands had sharply risen, illustrating a growing dominance in this area.

The expansion of market share for these leading companies coincides with several benefits arising from procurement regulations and the pace of domestic substitutionsAs a case study, Dabo Medical recorded notable price hikes between 20% to 50% within its trauma segment products following the renewal of bidding in September 2023, maintaining leading market positionsIn the spinal category, they achieved a 7.83% market share based on transaction amount, reflecting substantial growth compared to prior benchmarks.

As for 2024, Dabo Medical’s performance forecast emphasizes that the strategic adjustments and steady recovery of their orthopedic business line are fundamental to their prosperitySimilarly, Weigao Orthopedics has reported stable growth in routine spinal and trauma business, alongside anticipated growth in their joint business line and minimally invasive procedures for spinal treatments.

Looking ahead, the once declining market now presents expansive opportunities for growthGiven the direct correlation between age and musculoskeletal disorders, the rate of prevalence within older populations, particularly those aged over 60, is significantly higher than younger demographics

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The ongoing demographic shift towards an aging population is poised to escalate the incidence of orthopedic diseases in China, thereby multiplying the market for orthopedic implants.

Moreover, the current penetration rate of orthopedic surgeries within China remains comparatively low against developed nations in Europe and North AmericaThis is especially pronounced within joint replacements, indicating a promising avenue for growth in the futureChallenges in orthopedic disease treatment persist within clinical settings, signaling a pressing need for innovative solutionsAs speculated by market analysts, the positioning for future surgeries and innovative products will likely remain a sustaining industry trend.

In tandem with domestic advancements, both Dabo Medical and Weigao Orthopedics are actively expanding into the global marketDabo Medical showcased impressive results as their overseas revenue reached approximately 104 million yuan, witnessing a growth of 40.52%, notably surpassing the overall revenue growth rateThe revenue from international operations now constitutes around 10.84% of their total earnings.

Similarly, Weigao Orthopedics has emphasized their regional market strategy, enhancing product visibility through academic collaborations and establishing educational centers for healthcare practitioners in select countriesThis approach has yielded a remarkable yearly increase of 52% in international trade.

The burgeoning international market presents companies with untapped opportunitiesAccording to market forecasts, the global medical device market is projected to reach approximately 370.8 billion yuan by 2025, driven by rising demands from both developed and emerging marketsThe contrast in pricing power, influenced by differing economic conditions and healthcare insurance levels across countries, positions Chinese orthopedic suppliers in a favorable light as they reach for international customers.

By establishing robust international partnerships, focusing on product registrations, and crafting innovative narratives for product launches, Dabo Medical has already succeeded in entering over 60 countries, marking its presence across multiple regions

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