Driven by the rising incidence of acute myocardial infarction (AMI) and the rising prevalence of PCI, it is expected that the 2018-23e Chinese market for coronary intervention equipment and PCI support equipment will record a compound annual growth rate of 12.9% / 13.3%, respectively. According to Frost Sullivan, the number of PCI surgeries in China reached 900000 in 2018 and will record a compound annual growth rate of 14% in 2018-23e. Falls estimates that in the market for coronary intervention consumables / PCI support devices, imported brands accounted for 89 per cent / 87 per cent of the market respectively in 2018. We expect that due to the continuous progress of domestic brand technology and the high product price, domestic brands will continue to gain market share in the future. Kandelai Medical equipment ranked second in the domestic coronary intervention consumables market in 2018, with a market share of 1.8%, and ranked first in China's PCI support equipment market, with a market share of 3.1%.
Product portfolio diversification into the field of new intervention devices. Kangdelai's product portfolio covers the support supplies for the entire process of PCI surgery, such as balloon dilatation pressure pumps, catheter sheath kits, angiographic catheters, arterial compression tourniquet, etc. In the 2016-18 fiscal year, its income grew at a compound annual rate of 38 per cent and net profit at a compound annual growth rate of 31 per cent. At present, Kandelai Medical equipment has expanded its product portfolio from cardiovascular to interventional devices in the field of neurology, digestive tract and gynecological diseases. As of September 16, 2019, there are 16 types of equipment products on the company's pipeline. Blockbuster products include thrombectomy catheters, degradable sinus / biliary stents and aortic interventional valves, which are expected to be launched in 2022-24e.
The compound annual growth rate of revenue / net profit for fiscal year 18-21 is expected to be 41.3% / 49.5%. We expect total revenue to grow by 48% / 42% / 45% to 289 million / 418 million / 573 million RMB respectively in the fiscal year 19-20-21, mainly driven by the strong growth of existing products and the launch of new products. We expect the net profit for the fiscal year 19-20-21 to increase by 61% / 56% / 33% to 94 million / 146 million / 194 million RMB respectively, and the net profit margin for the fiscal year 19-20-21 will increase to 32% / 35% / 34%, due to the upcoming high-profit products and additional interest income.
Give a "buy" rating for the first time, with a target price of HK $39.50. In view of the strong cash flow of Kandelai Medical equipment and the large number of pipeline blockbuster products, we use the discounted cash flow model (DCF) for valuation and arrive at the target price of HK $39.50 based on the 8-year DCF model (WACC:10.42, final value growth rate: 3%).
Catalyst: better-than-expected performance; risk: product launch delay.