Industry pain point: China's pathologist gap is expected to be 77,300 to 171,800. According to statistics from the “China Health Statistics Yearbook”, the number of practicing (assistant) pathologists in China is only about 17,200. According to the standards stipulated in the “Guidelines for the Construction and Management of Pathology Departments (Trial)”, pathologists are assigned 1-2 people for every 100 beds. Based on the calculation of 2 pathologists for every 100 beds, the number of pathologists is about 189,900. Based on the calculation of 1 pathologist for every 100 beds, the number of pathologists required is about 94,500.
AI+ pathology is expected to solve industry pain points. In a future where industry-standard training data is available, computing power is sufficient, and models are perfect, “AI+ Pathology” is expected to greatly reduce pathologists' simple repetitive film reading work and focus their attention on suspected cases. “AI+ pathology” can continuously improve the knowledge system of pathologists and digital pathology diagnosis, integrate immunohistochemistry, molecular test data analysis and clinical information, obtain a final pathological diagnosis report integrating relevant information, and provide patients with prognosis information and accurate clinical diagnosis and treatment plans.
Lanwei Medical has developed a forward-looking layout in the field of pathologic AI and has made substantial progress. In terms of pathologic technology innovation, the “Single Disease Intelligent Initial Screening Robot Diagnostic Standard Data Set Based on Pathological Digital Slice Labeling” (“Digital Slicing Standard Set”) project in which the company participated was officially implemented to build a basic data platform for pathological AI diagnostic standards, taking a substantial step in pathological AI. In September 2022, the company officially signed a mission letter with the Shanghai Economic and Information Technology Commission to begin the construction of a digital slicing standard set.
This project is one of Shanghai's special projects to promote high-quality industrial development (artificial intelligence topic). This standard data set, based on a number of well-known tertiary hospitals in Shanghai, currently has 4,500 cases in a single disease type and a total of 27,000 histopathology digital slices with labeled information for the six major diseases (lung cancer, stomach cancer, liver cancer, colorectal cancer, breast cancer, and prostate cancer).
The company's annual report stated, “In terms of data, the standard set of pathology digital sectioning standards is expected to become the first large-scale standard database for histopathology in the pathology industry in China.” The pathologic diagnosis information in the project results and the collection of pathological digital slice images labeled and reviewed according to uniform standards have various application scenarios. Related products are expected to improve the quality and reduce acquisition costs of training data for various pathological AI companies through standardized large-scale effects, thereby empowering the rapid and healthy development of the domestic pathological AI industry.
The company's set of digital slicing standards is expected to become an industry standard. According to the company's annual report, the digital slicing standard set project will cooperate with the “National Drug Administration Intelligent Medical Device Research and Evaluation Key Laboratory” to formulate local standards for a single disease intelligent initial screening robot diagnostic standard data set based on the labeling of digital slices of pathology, and further promote the formation of industry standards or national standards.
Investment advice. We expect the company's revenue for 2023-2025 to be 2,401 million yuan, 2,988 billion yuan and 3.735 billion yuan respectively, with year-on-year growth rates of -42.8%, 24.4% and 25.0% respectively; net profit of 150 million yuan, 240 million yuan and 300 million yuan respectively, with year-on-year growth rates of -75.3%, 58.4% and 25.0% respectively; EPS is 0.38 yuan, 0.60 yuan and 0.76 yuan respectively. Corresponding to May 5, 2023, PE was 48.4X, 30.5X, 24.4X, respectively. From the perspective of a comparable company, Lanwei Medical's current market value is at a reasonable valuation level.
The company is forward-looking in the AI pathology business, and substantial progress has been made. Based on comprehensive considerations, the company's AI pathology business is expected to provide valuation flexibility. Covered for the first time, it strategically gave a “buy” rating.
Risk warning: risk of failure in AI pathology business; risk of accounts receivable risk; risk of loss of customers and failure to develop new customers; management risks brought about by rapid expansion; quality control risks; innovation risks under policy changes.