Xintong Medical performance is in line with our and market expectations.
The company announced 1H22 results: revenue of 125 million yuan, an increase of 44.8% over the same period last year; net loss of 122 million yuan (1H21 net loss of 70.07 million yuan). Income and net loss are in the range of previous performance forecasts, and the company's performance is in line with our and market expectations.
Trend of development
The amount of TAVR implantation increased steadily and the admission performance was excellent. The company said that due to the elective nature of TAVR surgery, the volume of TAVR surgery in severely affected areas was limited, but 1H22 as a whole still achieved steady growth in implants and sales, which recovered rapidly in June and reached an all-time high. We estimate that the number of TAVR implants of 1H22 will be 1335 (1H21 is about 835, an increase of about 60% over the same period last year), and that it will maintain a steady planting capacity of about 300 in July. The company disclosed that as of June 2022, TAVR products had entered more than 390 hospitals (mostly Class III A hospitals, compared with 300 in 2021), with more than 230 leading hospitals (180 in 2021).
The R & D pipeline has progressed smoothly, and the overseas commercial layout has achieved phased results. As of June 2022, the company's third-generation TAVR (adjustable bending conveying system) is in the process of design, and the new generation of TAVR (dry valve anti-calcification) is in the design stage. In July, the company developed TMVR (transcatheter mitral valve replacement) to complete the first human application (FIM), becoming the first dry valve TMVR product in the world to enter the clinic; AltaValve/Amend, a mitral valve interventional replacement / annulus repair product co-developed, has successfully promoted early feasibility studies overseas, and the above two products are in the preparation stage of FIM in China. 1H22, with an overseas income of 18.34 million yuan, has completed more than 20 TAVR operations in Argentina. In August, the second-generation TAVR was successfully registered in Colombia, the registration of CE has made phased progress, and the registration work in India, Brazil, South Korea and other emerging markets is being carried out in an orderly manner.
The gross profit margin increased significantly, and the expense rate increased compared with the same period last year. 1H22, gross profit margin increased by 8.6ppts to 63.7% compared with the same period last year, mainly due to increasing the domestic proportion of pericardial materials, reducing procurement costs, economies of scale, etc., we expect gross profit margin to continue to rise in the second half of the year. R & D expenses increased 62% year-on-year to 79.61 million yuan, and R & D expenditure rate increased 7ppts to 64% year-on-year, mainly due to the increase in R & D team to more than 110 people (80 in 2021), TAVR overseas clinical promotion and increased spending on VitaFlow III and mitral valve intervention products. Sales expenses increased 55% year-on-year to 61.05 million yuan, and sales expense rate increased 3ppts to 49% year-on-year, mainly due to a year-on-year increase in the number of sales teams of about 100%, 129% to 160 people, increased academic promotion of new products, and so on.
Profit forecast and valuation
Due to the adverse impact of the epidemic on the volume of TAVR products, we downgrade the forecast of EPS in 2022 Lexi 23 to-0.10 Yumei 0.04 yuan (before adjustment, it is-0.07pm 0.02 yuan). Based on confidence in the company's pipeline research and international business, it maintains an outperforming industry rating and a target price of HK $3.90 based on the DCF model (WACC is 10.5 per cent, with a sustainable growth rate of 0.7 per cent), with 37.3 per cent upside from the current share price.
Risk
The progress of research and development is not as expected, the market competition pattern deteriorates, and the policy suppresses the price more than expected.
