The company is a leading enterprise of minimally invasive surgical instruments and accessories in China. The company's main minimally invasive surgical instruments and accessories (MISIA), the main products include disposable products (disposable casing puncture device, polymer ligation clip, disposable electrocoagulation forceps, disposable ultrasonic knife, etc.) and repetitive products (4K endoscope camera system, etc.). In 2021, disposable products accounted for 88% and repetitive products accounted for 12%. From a regional point of view, domestic sales accounted for 93%, foreign sales accounted for 7%, and overseas sales grew rapidly, with a year-on-year growth rate of 36%. In the future, the company is expected to increase revenue year by year by expanding its team, increasing product registration, further diversifying its export product portfolio and increasing its distributors.

The minimally invasive surgical instrument industry is in a period of rapid development and the permeability will be improved. Benefiting from the rapid development of minimally invasive surgery in China, minimally invasive surgical instruments and accessories (MISIA) market has entered a period of rapid development. The number of minimally invasive surgery in China is 13.5 million in 2021 and is expected to reach 22.4 million in 2026. 2019-2024 minimally invasive surgery penetration per million people is expected to increase from 38 per cent to 49 per cent. From 2016 to 2021, the market size of minimally invasive surgical instruments and accessories in China has increased from 11.4 billion yuan to 22 billion yuan, and CAGR has reached 14.1%. It is expected that the market will reach 33.1 billion yuan.

It has obvious advantages to create an integrated surgical solution of "equipment + equipment + consumables". The company's products have covered surgical disposable materials, repeatable instruments, surgical energy equipment, surgical imaging equipment, to create a "equipment + instruments + consumables" platform, surgical instruments and accessories products are rich. The company has been established for nearly 20 years, and the founder is the first batch of surgical instrument practitioners in China in the 1990s. The product design is close to the clinical demand, the accumulation of industrial expert resources is profound, and the brand advantage and first-mover advantage are outstanding.

The company's main products have the first market share and the third sales scale. In terms of sales, the company's market share of disposable casing piercers is 21.6%, disposable ligation clamps is 30.6%, disposable electrocoagulation forceps is 49.8%, repetitive casing piercers and pliers are 19.6%, all of which rank first (including importers). In 2021, the market sales scale of the company surpassed that of German importers and became the third largest supplier in China's MISIA market, ranking behind global giants Johnson & Johnson and Medtronic PLC. In the past three years, the gross profit margin of disposable products in the main business is 87.2%, 87.4% and 84.8%, respectively, which is at a better level among the peers. Due to the mature distribution model of the company, product marketing mainly depends on dealers and distributors, with fewer sales, lower sales expense rate and higher net interest rate. According to the 2021 sales market calculation, only Johnson & Johnson and Medtronic PLC two major importers have reached 57% of the market share. Under the centralized procurement implementation of the regional alliance, the company is expected to achieve sales volume through import substitution.

The R & D pipeline is gradually realized, and the management continues to repurchase to show confidence. In addition to longitudinally expanding product indications and increasing disposable products, the company has a product line of horizontal layout stapler, ultrasonic knife, endoscope and so on. Large items such as absorbable ligation clips, abdominal stapler and disposable ultrasonic knife products are expected to be gradually increased. The company's forward-looking layout of laparoscopic minimally invasive surgery robot is expected to continue to maintain brand advantages and customer stickiness. The management has continued to buy back in the past three months, with a total repurchase of more than HK $10 million in a single month, demonstrating the management's confidence in the future development of the company.

Profit forecast and valuation: as a domestic leading enterprise in the MISIA market, "minimally invasive therapy infiltration + import substitution" promotes the steady growth of the company's performance, and revenue in 23-24 is expected to achieve more than 30% growth with the recovery of hospital surgery and the approval of new products. It is estimated that the 22-24 revenue is 1.252 billion yuan (+ 6.6%, 30.5%, 30.4%) in 22-24, and the net profit of homing in 22-24 is RMB 516,672 million (- 12.1%, 28.6%, 30.0%). The current stock price corresponds to 25x/19x/14x, respectively. Through the relative valuation method, the company is expected to have a reasonable valuation of HK $12.32-14.18, giving a "buy" rating for the first time.

Risk hints: the risk of collection decline more than expected; the risk that homogenization competition leads to lower product prices and lower gross profit; the risk that overseas expansion is less than expected; the risk that R & D pipelines fail to meet expectations; the risk of overseas revenue decline caused by trade frictions.