1H23's performance met our expectations

The company announced 1H23 results: revenue of 256 million yuan, an increase of 21.7% over the previous year; net loss for Gimu was 350 million yuan, compared to 200 million yuan for the same period last year. The 1H23 results were in line with our expectations.

Development trends

Domestic TAVR is growing well and is adhering to a profit strategy. The company said that the number of TAVR (Transcatheter Aortic Valve Replacement) implants in the first half of the year was about 2,300 (of which second-generation products accounted for 70%), and we estimate that the year-on-year growth rate was about 25-30%. The company expects 2H23 to continue to grow month-on-month, maintaining the annual target of 5,000 units. The company also said that patient subsidy expenses were reduced to 11,000 yuan/unit in the first half of this year (20,000 yuan/unit for the full year of 2022), achieving a commercial profit margin of 9-10% for TAVR. As of 1H23, the company has covered more than 420 hospitals and has a sales team of 260 people. In addition, the company's guidelines for the full year of 2023 will drop to 55-60%, and management/R&D expenses will be controlled at around 145 million yuan, respectively. The company expects to achieve break-even by 2025.

The pulmonary valve went smoothly out of the sea, and clinical trials in the US will soon begin. 1H23 achieved overseas revenue of RMB 22.49 million, +60% year-on-year. The number of pulmonary valve VenusP implants increased 80% month-on-month, and 77% of 1H23 implants came from European countries such as Germany and France. The company expects to achieve overseas sales of about 10 million US dollars in 2023, corresponding to sales of more than 600 sets of pulmonary valves. In July 2023, pulmonary valve received IDE trial approval from the US FDA. Key clinical trials in the US will soon begin. The company expects to enroll a total of 60 patients in the US and Japan. The company expects the number of transcatheter pulmonary valve replacement surgeries to reach 40,000 units worldwide by 2025.

The research pipeline is progressing smoothly, and multiple international multi-center clinical trials may be launched one after another. The company stated:

1) CardioValve's key clinical study for tricuspid valve reflux Target CE is expected to complete the enrollment of about 80 patients this year (nearly 50 cases have been completed) and approved for listing in Europe in 2026; international multi-center clinical trials for mitral valve indications will begin in 2024; 2) Liwen RF plans to register in China within this year, and 2H24 will be approved for listing; 3) Third-generation stem valve TAVR Vitae and PowerX are expected to begin international multi-center clinical enrollment from the second half of this year to the beginning of next year, respectively Approved for marketing in many parts of the world in 2026; 4) RDN ultrasonic ablation is being tested on animals.

Profit forecasting and valuation

Considering that the company is actively promoting product development, we adjusted our net loss forecast for 2023/24 from 416.60 million yuan to 634/161 million yuan. We maintained our outperforming industry rating and lowered our target price based on the DCF model (WACC 11.5%, sustainable growth rate 2.0%) by 46% to HK$8.5, which is 70% upward from the current stock price.

risks

R&D progress fell short of expectations, the competitive landscape worsened, and overseas business development fell short of expectations.