1H23's performance met our expectations
The company announced 1H23 results: revenue of 243 million yuan, +39% year-on-year; net profit of 22.37 million yuan; adjusted net profit of 35.71 million yuan. The results for the first half of the year were in line with our expectations.
Development trends
The business maintained a high growth rate, and the revenue structure was diversified. 1) The revenue from lap medicine balls was 126 million yuan, +2% year on year, and its share of revenue fell to 52%. We believe that although collection will bring about factory price adjustments, lower limb interventional surgery has a strong price-for-volume logic, and the increase in surgical penetration rate is expected to help keep the income from knee medicine balls stable. 2) Revenue from knee medicine balls was 26.7 million yuan, +40% over the same period, covering a total of 750 hospitals. 3) Revenue from intravenous intervention and vascular access was 88.94 million yuan, an increase of 191% over the previous year. The peripheral aspiration system and radiofrequency ablation system covered 1,100/200 hospitals, respectively. 1H23's overall gross profit margin was 80.3%, year-on-year -2.3 ppt. The company said that the gross profit level was mainly low in the early stages of the launch of new products, and gross margin is expected to rise in the future. The company also maintained its guidelines for revenue growth of more than 30% for the full year of 2023.
Research and development progressed smoothly, and a tool kit for vascular intervention gradually took shape. 1H23 has been approved for 4 products in the Chinese market, including second-generation suction systems and arteriovenous fistula hypertensive drug balls. In the next 1-2 years, new products such as indented balloons, coronary rapamycin pills, guide extension catheters, three-guide wire balloons, peripheral spring rings, and intracranial pills will be approved. We believe that the company's products in the field of pan-vascular intervention, including lower extremities, hemodialysis, coronary arteries, and cerebral arteries, are becoming more and more abundant, and it is expected that the company's brand competitiveness will continue to be enhanced and the revenue structure will continue to be optimized.
The scientific collaboration with Boston has entered the implementation stage, and we are still waiting for the results to be implemented overseas. In July of this year, the company and Boston Science formally signed a cooperation framework and service framework agreement. Boston Science will exclusively represent Xianruida products in overseas markets (the first batch of 11 products, including knee medicine balls, knee medicine balls, peripheral suction systems, and radio frequency ablation systems). Xianruida will be responsible for registration and evidence collection, and Boston Science will be responsible for sales. The maximum amount for Boston Scientific to purchase Xianruida products is 20 million/50 million/110 million US dollars for 2023/2024/2025, respectively. We expect our products to go overseas to bring increased revenue and profit to the company. Furthermore, the company said that the IDE clinical trial of the US knee medication is expected to be approved by the FDA at the end of this year or the beginning of next year and that patient enrollment will begin. Boston Science has provided the company with support in clinical center selection and management.
Profit forecasting and valuation
We keep our profit forecast unchanged, and the current stock price corresponds to 47/30 times the price-earnings ratio for 2023/24. We maintain our outperforming industry ratings. Based on optimism about the domestic and international market space of the company's innovative products, we maintain a target price of HK$23, corresponding to a price-earnings ratio of 55 times in 2024, and 1.0 times PEG in 2024, which is 84% upward from the current stock price.
risks
Internationalization fell short of expectations, collection price cuts exceeded expectations, and the competitive landscape worsened.