New Stock Outlook | Mingzhi Technology: The Profit Miracle and Cash Flow Hidden Dangers Behind Vertical Integration

Recently, MZ MedTech Co., Ltd. (hereinafter referred to as MZ MedTech) officially submitted an application for listing on the main board of the Hong Kong Stock Exchange, with Jefferies International acting as the sole sponsor. This platform-based medical device company focusing on disposable endoscopes has quickly become a focus of capital markets attention with its impressive financial data - a gross profit margin of 72.62% in 2024, a net profit margin of 47.26%, and a leading position in the global market. However, behind its high gross profit margin, challenges such as high customer concentration, declining cash flow, and intensifying market competition are also significant. Vertical integration and product advantages build a moat Financial performance shows "structural differentiation" The prospectus shows that MZ MedTech positions itself as a "platform-based medical device company", with the core concept being its unique vertical integration model. The company achieves independent control over the entire process from the independent research and development and manufacturing of core optoelectronic components and precision parts to the assembly of complete systems, making it one of the very few companies globally to successfully achieve vertical integration of the supply chain for disposable endoscopes. This vertical integration model brings significant cost advantages and technical control. The prospectus shows that the company's gross profit margin increased from 69.1% in 2023 to 73.7% in the first nine months of 2025, with the continuous improvement in profitability partially benefiting from the cost optimization brought about by the autonomous nature of the supply chain. At the same time, the technical specifications of the company's products are also highly competitive - it has developed "one of the thinnest disposable ureteroscopes in the world" and "one of the thinnest cystoscopes in the world (working channel of 6.6Fr)", these technological innovations are significant in minimally invasive surgery, reducing patient pain and lowering surgical risks. In terms of product portfolio, MZ MedTech has developed three major brand matrices: its own brand OTU (ONETU), OTU joint brand, and WiScope brands, covering six major fields including urology, hepatobiliary surgery, respiratory medicine, otolaryngology, gastroenterology, and gynecology. As of the publication date of the prospectus, the company has 8 approved product categories in major markets worldwide, and an additional 5 product categories expected to be launched in the market between 2026 and 2027. In terms of market position, based on the shipment volume in 2024, MZ MedTech ranked among the top three brands in the disposable ureteroscope market in the United States, Europe, and Japan. This achievement is particularly remarkable for a domestic Chinese medical device company, especially being able to rank among the top in the high technological barrier and strict regulatory European and American markets, reflecting the international competitiveness of the company's products. It is worth noting that the financial data of MZ MedTech reveals the distinct characteristics presented as a leading enterprise in the field of disposable endoscopes: while maintaining steady revenue growth, it has maintained exceptional profitability. However, the recent momentum shows signs of fatigue, and the pressure on the profit side is significant. In terms of revenue scale, the company achieved revenue of 141 million yuan in 2024, a year-on-year increase of approximately 4.4% from 135 million yuan in 2023, indicating a relatively stable growth. More importantly, the performance in the first nine months of 2025 is worth noting: the revenue for the period was 117 million yuan, only a 3.86% increase from the same period in 2024, with no significant increase in growth rate, indicating that the company's market expansion and revenue growth may have entered a plateau. However, the profitability indicator of the company is remarkable. The gross profit margin increased significantly from 69.1% in 2023 (gross profit of 934 million yuan/revenue of 1.352 billion yuan) to 72.6% in 2024 (gross profit of 1.024 billion yuan/ revenue of 1.411 billion yuan), and further increased to 73.7% in the first nine months of 2025 (gross profit of 860 million yuan/revenue of 1.168 billion yuan). This sustained upward trend in gross profit margin strongly confirms the cost advantages and technical premium capabilities brought about by the company's claim of "supply chain vertical integration". The proportion of sales costs to revenue steadily decreased from 30.9% in 2023 to 26.3% in the first nine months of 2025, which was a direct cause of the improvement in gross profit. In terms of pre-tax profit, it reached 81.83 million yuan in 2024, a significant increase of 28.0% from 63.92 million yuan in 2023, far exceeding the growth in revenue, highlighting the operational leverage effect. However, this growth trend reversed in the first nine months of 2025: the pre-tax profit for the period was 58.93 million yuan, a significant decrease of 16.2% from 70.31 million yuan in the same period of 2024. This directly led to the period profit (net profit) falling from 58.38 million yuan in the same period of 2024 to 49.92 million yuan, a decrease of 14.5%. Although the income tax expense decreased (from 11.93 million yuan to 9.01 million yuan), it was not enough to reverse the downward trend in profit. In summary, MZ MedTech's financial performance presents a "structural differentiation": on one hand, while revenue growth is not high, the extremely high and continuously improving gross profit margin proves the strong market competitiveness and pricing power of its products. On the other hand, the slight increase in revenue and the double-digit decline in profit in the first nine months of 2025 expose the new challenges the company faces in its growth process. The decline in profit may be due to increased sales and marketing expenses to cope with intensifying market competition; continued increase in research and development investment; and operational efficiency issues (such as increased inventory and operational costs due to extended collection periods). This is corroborated by the deterioration of operating cash flow disclosed in the prospectus (down 19.45% year-on-year in the first nine months of 2025). Finally, with a net profit margin as high as 47.3% in 2024, even in the first nine months of 2025 with declining profits, the net profit margin remains at a high level of 42.8%. Such a high net profit margin is extremely rare in the medical device industry, and it is both a testament to the success of its business model and a potential risk point when facing intense competition and rising cost pressures in the future. MZ MedTech's financial statements depict a company at a critical turning point: it has established a solid profit moat with its technological advantages and vertical integration model, but it also faces the pains of transitioning from a "high-profit niche market leader" to a "scalable growth platform". Behind the high-growth track of endoscopes Customer concentration and cash flow challenges to be resolved The disposable endoscope market is currently at a critical stage of rapid growth and reshaping. This field is rapidly becoming an important growth point in the global medical device industry due to its ability to effectively avoid the risk of cross-infection associated with traditional reusable endoscopes and significantly reduce hospital cleaning, disinfection, and maintenance costs. According to industry forecasts, the global market size is expected to expand from approximately $2 billion in 2023 to over $6 billion in 2030, with a compound annual growth rate exceeding 17%, indicating vast market potential. However, this high-growth track also presents significant barriers to competition and centralization. Currently, the international market is dominated by giants such as Ambu, Boston Scientific, and Olympus, with the three of them collectively occupying over 40% of the global market share. Among them, Ambu holds about 25% market share in the European market, and Olympus holds about 35% of the market in the field of digestive endoscopes. These companies have established strong first-mover advantages and market moats through deep-brand accumulation, continuous high-intensity research and development investment, and mature global distribution networks. In the Chinese market, domestic companies such as Sonoscape Medical Corp. and Shanghai Aohua Photoelectricity Endoscope are also accelerating their layouts. Sonoscape Medical Corp. has entered the field of disposable ureteroscopes in urology, directly competing with MZ MedTech. With the increasing number of new entrants, the industry faces the dual challenges of rising price pressures and accelerating technological iteration. Market competition is no longer limited to product performance but extends to comprehensive dimensions such as supply chain efficiency, cost control, and clinical service capabilities. In terms of regional market structure, Europe and the United States are currently the main consumption markets for disposable endoscopes globally, closely related to their strict infection control regulations, comprehensive medical insurance payment systems, and high medical standards. MZ MedTech's leading position in mainstream markets such as the United States, Europe, and Japan is one of its core advantages, but it also leads to the high dependence of the company's revenue on overseas markets, making its business performance susceptible to external systemic risks such as geopolitical impact, exchange rate fluctuations, and changes in international trade policies. It is worth noting that as MZ MedTech expands rapidly, several structural risks have already been manifested in its financial and operational indicators. Firstly, customer concentration remains high: from 2023 to the first nine months of 2025, the sales revenue of the top five customers consistently accounted for between 62.6% and 69.9%, with the sales of the largest single customer consistently exceeding 30%. This concentration means that the company's performance stability is closely tied to the purchasing decisions of its main customers, posing significant dependency risks. Secondly, the channel structure is relatively single. Although the company has implemented a "hybrid global commercialization strategy", in 2024, 92.8% of the revenue still came from distributors, with only 7.2% from direct sales. While overly relying on distribution systems can help achieve rapid market coverage, it also weakens the company's control over end customers, squeezes profit margins, and makes sales vulnerable to the strategic adjustments of distributors. Thirdly, supplier concentration was previously high. In 2024, the procurement from the top five suppliers accounted for as high as 81.5%, although it has been reduced to 44.4% in the first nine months of 2025 through a diversification strategy, showing that the company has started to improve the structure of its supply chain. However, the stability of the supply of core components and raw materials remains a long-term risk point that needs to be managed, especially against the backdrop of global supply chain restructuring. Finally, there are hidden concerns about the quality of growth. In the first nine months of 2025, the net profit fell by 14.49% year-on-year, and the net cash flow from operating activities decreased by 19.45%. The deterioration of cash flow was mainly due to an increase in inventory and an extension of the accounts receivable collection period, indicating that the company faces challenges in operational efficiency and capital turnover capability in the process of expanding its scale. Although the gross profit margin remains at a high level of 73.7%, the contraction of net profit may have already reflected the initial erosion of the company's profitability from intensified market competition. In conclusion, while the single-use endoscope track has promising prospects, competition is intensifying. Whether companies can strike a balance between continuous technological innovation, robust supply chain management, balanced customer and channel structures, and refined operational efficiency will determine whether they can achieve sustainable development in a high-growth market and ultimately stand out. For MZ MedTech, effectively managing the operational and financial risks mentioned above while enjoying the industry's growth dividends is crucial for realizing long-term value.