Revenue was up 21.7% YoY to RMB256m, with total TAVR implants of 2,300, in line with BOCIe, while net loss widened to RMB351m in 1H23, mainly due to surging R&D expenses and selling expenses, partially offset by improved gross margin. Instead of involution with peers in China, Venus focuses more on overseas opportunities, and expects Pvalve to launch in the US and CardioValve to obtain CE mark in 2026.The management maintains its guidance of 5,000 implants in China, and saw limited impacts from ongoing anti-graft activities given improved implants MoM in August. Currently, Venus' market cap is lower than peers (HK$2.2bn vs. c.HK$4.9bn of Peijia and c.HK$4.4bn of CardioFlow). While fundamentally we see the company core business remains on track, we believe investors' sentiment was clouded by (i) corporate governance concern, (ii) increasing Opex, and (iii) losing market share to peers. Post results, we revised down our TP to HK$12, basically on higher selling and R&D expenses. Maintain BUY.
Key Factors for Rating
In-line topline but widened loss due to surging R&D: Revenue was up 21.7% YoY to RMB256m, with RMB230m (+17% YoY) from TAVR and RMB25m (177% YoY or -21% HoH) from TPVR, respectively. Gross margin improved 0.5ppt YoY to 79%. Selling, admin and R&D expenses increased by 28%, 42% and 34%, YoY respectively, accounting for 62%, 30% and 115% of revenue.Net loss widened from RMB200m in 1H22 to RMB351m in 1H23. As of June 2023, Venus has c.RMB1.4bn cash. The management expects Venus to achieve breakeven in 2025.
Updates on commercialisation in China: according to management, Venus has completed 2,300 implants in 1H23, and maintains its guidance of 5,000 implants. Ex-factory ASP slightly decreased from RMB105k in 2022 to RMB102k-103k in 1H23. Selling expenses ratio increased 3ppts YoY to 62% in 1H23. Meanwhile, patient allowance has significantly decreased from RMB20,000 in 2022 to RMB11,000 in 1H23, allowing TAVR business to realise 9%-10% commercialisation profits margin in China. The management expects the commercialisation profit margin to continue to improve in 2H23, thanks to (i) improved patient affordability (more medical insurance coverage and gradually decreasing terminal price resulting in less patients allowance); (ii) online-offline hybrid physician education model, and (iii) continuous gross margin improvement. The monthly implantation volume in July and August was around 350, and management sees improved implantation MoM in August.
Valuation
Post results, we fine tuned our 2023-25E revenue and expect Venus to hold 40% market share in China in 2023. We raised our GPM while increasing R&D expenses and selling expenses. Updated CNY/HKD FX rate to 1.12, and revised down TP to HK$12. Maintain BUY.
Key Risks for Rating
(i) intensified competition; (ii)) slower-than-expected sales ramp-up of TAVR products and R&D progress on pipeline products.
Overseas forays: in 1H23, revenue from overseas markets increased by 60% YoY, thanks to growth in implantation volume of TPVR (+80% HoH). The management shared that implants in Europe accounted for 77% of total implants in overseas markets. As of August 2023, Pvalve has been included in the reimbursement scope of some Western European countries, and was launched in 30+countries. In July 2023, Pvalve obtained approval from the FDA for IDE application, and the management expects to kick off the pivotal trial in the US in October-November and in Japan in YE23 or beginning of 2024, respectively, with a total of 60 patient enrolments to be completed by YE24 and obtaining approval in 2026. The management expects overseas markets to contribute US$10m of revenue in 2023, owing to the increasing implants in Europe.
