The revenue growth rate and loss narrowing in 2022 fell short of expectations, mainly due to delays in the issuance of allocation certificates and the epidemic. As the allocation certificate number plan is expected to be issued in 2Q23, it is expected to drive the increase in the number of domestic workers in Tumai. Furthermore, as Tumai begins to contribute revenue and the construction of production capacity and training centers reaches the planned scale, future cash flow will gradually improve. The company still has a credit line of more than 1 billion yuan to support cash expenses before listing on the Science and Technology Innovation Board. We are firmly optimistic about the “increased penetration rate+domestic replacement” logic of surgical robots and maintained “buying”, but due to delays in the issuance of configuration certificates and the impact of the epidemic later than previously anticipated, the target price was lowered to HK$40.0.
Performance & Guidelines: Revenue for the full year of 2022 was RMB 21.6 million (lower than the previous guideline of RMB 30-50 million; vs. 2021:2.15 million yuan), Tumai won bids for 5 hospital projects during the year, and completed the first commercial installation and confirmed revenue at Gansu Wuwei Cancer Hospital. The gross profit margin was 30.4% (-12.4pcts), and the decline in gross margin was mainly due to the impact of work stoppages due to the pandemic. Guimu's net loss was 1.15 billion yuan (vs. 2021: loss of 580 million yuan). The company guides revenue of RMB 220 million and net loss/adjusted net loss of RMB 970 million/RMB 8.1 billion in 2023.
The planned number of configuration certificates is expected to be released on 2Q23. The “Large Medical Equipment Configuration License Management Catalogue” was announced on March 21. Compared with the 2018 edition of the catalogue, the management items were adjusted from 10 to 6, and the undercover price of A/existing classes was raised to 50 million/300-50 million yuan. Although endoscopic surgical robots are still managed according to Class B equipment, the overall policy is being restricted and relaxed, and the subsequent increase in the number of configuration certificates is worth looking forward to. We expect that the planned number of configuration certificates may be released on 2Q23, which is expected to drive the increase in the number of internal vehicles in Tumai.
Major indications are about to be approved. Tumay 2 is expected to be approved and added gynaecology, general surgery, and thoracic indications within the year. The volume of gynaecology and general surgery is far greater than that of approved urology (Leonardo da Vinci's general surgery and gynecological surgery volume in 2022 was about 2.5-3.0 times the number of urological surgeries). Expanding the scope of indications can increase the willingness of hospitals to buy. With the implementation of post-pandemic surgery volume and configuration certification plans, we expect Tumai's installed volume to enter a period of rapid growth in 2023E.
There are still sufficient credit lines to support cash expenses: cash on the account at the end of the period was 750 million yuan (vs. 2021:1.94 billion yuan). The large amount of cash expenditure in 2022 was mainly due to the company's investment in production capacity and training center construction. It has now basically reached the company's planned scale. With the start of core sales and the decline in investment, the company expects 2023E net cash expenses to be controlled below 700 million yuan. Currently, the company still has unused bank credit lines of more than 1 billion yuan. We expect the company to be able to cope with cash expenses in the next 2 years. At present, the company continues to push forward with the Science and Technology Innovation Board listing plan already launched on 1H22. It is estimated that the issuance volume will not exceed 116 million shares (accounting for 12.2% of the number of shares currently issued). If calculated based on the current stock price, it can raise about RMB 2.8 billion if it is successfully issued.
Maintained the “buy” rating and lowered the target price by 11% to HK$40.0. We expect 2023-25E to generate revenue of RMB 22/61/1.23 billion, net loss of $994/77/499 million, and continue to use DCF to value the company (maintaining WACC 11.1% and assuming a sustainable growth rate of 3.0%), adjusting the target price to HK$40.0 million, corresponding to a target market value of HK$38.4 billion.
Investment risk: policy risk, slowing industry growth, slower than expected increase in RAS penetration rate.