Performance review
Qiming Medical 1H22 performance is lower than we expected.
The company announced 1H22 results: revenue was 210 million yuan, down 12.2% from the same period last year, and the net loss of homing expanded to 200 million yuan (the net loss of 1H21 was 110 million yuan). Due to the fluctuation of the epidemic situation in the first half of the year, the volume of TAVR surgery in China was slow, and the company's performance was lower than we expected.
Trend of development
The fluctuation of epidemic situation caused the volume and pressure of TAVR products. 1H22, the number of TAVR products implanted by the company is about 1800 (1H21 is about 1900, down 5.3% from the same period last year), of which the second generation accounts for 60% of the total. The company has guided that the number of TAVR implants for the whole year will be about 4000 (3600 in 2021, up 11% from the same period last year), and the share of the second generation (including the VenusA-Pro approved in May) has increased to more than 65%. With the adjustment of the product structure, we expect the average ex-factory price and gross profit margin of the company's TAVR products to be the same as last year.
Focus on the head customer and implement the profit strategy. Due to the fluctuation of the epidemic and the disappointment of the capital market, the company has shifted the focus of TAVR business development from market share to profitability on the premise of ensuring a 60% share. 1) adjust the customer structure: focus on increasing the output of single hospital in head and waist hospitals, and the subsidized donation of 1H22 patients decreased by 45% to 30 million yuan compared with the same period last year; 2) Control R & D expenses: if 120 million yuan is deducted from Cardiovalve, the R & D expenditure of 1H22 is about 100 million yuan, which is basically the same as that of 1H21. The management directs the R & D expenditure to be controlled between 4 billion yuan and 500 million yuan this year and next year (including the consolidated table); 3) to reduce production costs and optimize the supply chain, the company expects that costs will be reduced by 6-8% starting next year. According to the company's estimates, after deducting donations and other expenses, the profit margin of the 1H22 TAVR business has reached 6%. The company aims to operate cash flow / free cash flow positive by 2025.
Breakthroughs have been made in overseas business to promote international multicenter clinical practice. 1H22, the company's overseas sales totaled 14.03 million yuan, an increase of 151% over the same period last year. According to the company announcement and performance disclosure, 1) VenusP-Valve was approved by CE MDR in April and contributed 9.1 million yuan in overseas revenue within 2 months. The company maintains the product's annual overseas revenue guidelines of US $8 million. It is expected that IDE research in the United States will begin next year. 2) Cardiovalve has completed 18 tricuspid valve and 16 mitral valve clinical trials in Europe and the United States. The company expects 2H22 to start FIM research in China and start international multicenter clinical trials in China at the beginning of 2023. 3) Venus-Vitae and Venus-PowerX are under design verification, and the company expects to launch a global multicenter clinic next year, which will be carried out simultaneously in China and Europe; 4) Liwen radiofrequency ablation for the treatment of obese heart disease is more than half of the group, and the company is expected to be approved in 2024.
Profit forecast and valuation
Taking into account the adverse effects of the epidemic on TAVR production, we reduced the EPS from 2022 to-1.02 in 23 years to 0.64 yuan (before adjustment, it was-0.85 to 0.58 yuan). Maintain the outperform industry rating and lower the target price based on the DCF model (WACC of 10.7 per cent, sustainable growth rate of 0.4 per cent) of 12.5 per cent to HK $20.80, with 48.4 per cent upside from the current share price.
Risk.
The progress of R & D is not as expected, the competition situation is deteriorating, and the development of overseas business is not as expected.