Investment suggestion
After the national collection of coronary stents, national drug collection and renewal, the risk of collection of the company's stock business has been basically released, we believe that cardiovascular intervention and other innovative product pipelines are expected to enter a healthy growth cycle. The favorable policy of the industry resonates with the inflection point of the company's operation, and it is recommended to pay attention to the valuation repair and growth opportunities of Lepu Medical.
Reasons
Equipment policy is expected to ease, we expect domestic leading enterprises are expected to benefit. Recent policies such as dental implant collection, cardiac stent renewal, spine implant acquisition, Fujian electrophysiological consumables collection are better than or in line with market expectations. Combined with the innovative support policies such as DRG exclusion payment plan of Beijing Medical Insurance Bureau and TAVR consumables included by Shanghai Medical Insurance Bureau since the beginning of this year, we believe that the policy shows a moderating trend, taking into account the saving of health insurance funds and the profit space and innovative development of enterprises. We judge that the long-term expectation of domestic demand for medicine is significantly improved, and domestic leading enterprises in products such as Lepu Medical are expected to benefit significantly.
The collection pressure of the company's medical devices and pharmaceutical products is basically released. From 2019 to 2020, the postharvest prices of the company's three major products, coronary metal stents / clopidogrel / Atto vastatin, decreased by 93%, 57% and 83% respectively. However, the company has shown strong business resilience and market sense. With opportunities such as the volume of innovative coronary products and COVID-19 testing reagents, the revenue in 2019-2021 increased from 7.8 billion yuan to 10.7 billion yuan, with CAGR of 17%. At present, the collection pressure of the company's cardiovascular equipment and drugs is basically released, and surgical anesthesia is the collection beneficiary plate; coronary stent collection contract renewal is imminent, we think that the company can slightly increase the price of collection stents, and increase profits by increasing the number and supply of hospitals.
Open volume of innovative products such as cardiovascular intervention. Through the pharmaceutical business, the company provides cash flow for innovative product research and development, and gives full play to the brand and sales team to quickly push the approved products to the sales peak, so as to achieve endogenous and sustainable growth of the innovation pipeline. 1H22, the company's innovative coronary intervention product revenue increased 61% year-on-year, accounting for 69% of the total coronary revenue. The blockbuster products the company expects to commercialize in 2023-24 include:
FFR/ pulsed acoustic balloon in coronary intervention, small cutting balloon / pulsed acoustic balloon in peripheral intervention, PFO biodegradable occluder / TAVR in structural heart, radiofrequency atrial septal puncture system in electrophysiology and so on. The follow-up innovative pipeline not only stabilizes the company's leading position in the field of coronary artery and occluder, but also makes breakthroughs in high-growth industries such as peripheral intervention / heart valve / electrophysiology, and promotes the rapid release of reagents through equipment advantages in the field of IVD. The company guides that general business income and non-return net profit will grow by more than 15% in 2023, and we expect the company's overall revenue CAGR to be 15.1% in 2022-25.
Profit forecast and valuation
Taking into account the decline in the income of COVID-19 testing reagents and the dilution of equity of GDR issued by Switzerland, we lowered the 2022 EPS forecast by 29.4% to 1.15 yuan, and introduced the 2023 EPS forecast of 1.31 yuan for the first time.
The current share price corresponds to 2022, 23, 20.6, 20.6, 18.0, and E, respectively. Based on the bullish view on the volume of the company's innovative pipelines and the pick-up in the valuation of the pharmaceutical sector, we maintain the industry rating and target price of 30.5 yuan unchanged, corresponding to 23.3 times Phand E in 2022, 23 years, which is 29.3% higher than the current stock price.
Risk
The quantity of innovative products is less than expected, the progress of research and development is not as expected, and the risk of deterioration of the competition pattern.