1H23 revenue is + 22% year-on-year to RMB 260 million, and domestic planting volume is + 28% to 2300 units, resulting in a net loss of 350 million yuan (vs 1H22 loss of 200 million yuan). The company's domestic business attaches importance to profitability, 1H23 subsidies have dropped significantly; overseas business currently accelerates expansion with the help of Venus-P, and continues to promote DragonFly and Cardiovalve international multicenter clinic. Recently, affected by the plate correction and internal control events, the company has fallen sharply and its market capitalization has been significantly lower than that of its main competitors. Maintain the "buy" rating and lower the list price to HK $10.0.
1H23 performance: domestic growth rate is slightly lower than expected, overseas growth is strong. Revenue RMB 260 million (year-on-year + 22%), of which domestic income is 230 million yuan (year-on-year + 19%), planting volume is 2300 (year-on-year + 28%; second-generation products account for 70%), overseas income is 22.49 million yuan (year-on-year + 60%); gross profit margin is 78.7% (year-on-year + 0.5pcts) The net loss of the parent is 350 million yuan (the vs 1H22 loss is 200 million yuan), and the loss is enlarged because the company's expenses during the three major periods total + 33% compared with the same period last year, and the growth rate is higher than the income growth rate.
Domestic business emphasizes profitability, and the amount of 1H23 subsidies has dropped sharply. The number of 1H23 implants increased by 50 per cent from February to June compared with the same period last year, although the number of 1H23 implants was + 28 per cent year-on-year to 2300. Since last year, the company has taken the initiative to adjust its business strategy, shifting from a single emphasis on increasing market share to focusing on profitability. The subsidy for a single 1H23 operation has dropped from about 20,000 yuan to 11000 yuan, and the commercial profit margin of the domestic business 1H23 (that is, gross profit margin-sales expense rate) is about 10%. It is expected that the approved products of 2H23/2024 include: 1) domestic approval of DragonFly for mitral marginal repair (4Q23/1Q24E); 2) domestic approval of Liwen RF radiofrequency ablation (2H24E).
Overseas accelerated expansion with the help of VenusP-Valve, 2026E major valve tracks are expected to have overseas approved products: at present, the company mainly through VenusP-Valve to open up overseas markets, the company 1H23 overseas revenue of about 22.49 million yuan (year-on-year + 60%; accounting for 9% of revenue), the company expects annual overseas sales revenue of more than 10 million US dollars. The company emphasizes international development, although the gross profit margin of domestic and foreign intervention valve products is similar (75% 80% range), but considering the long-standing domestic policy and competitive pressure as well as the relatively low overseas sales expense rate, the overall profit margin is more attractive. It is estimated that 2025max 28e overseas revenue will account for 15% and 40%. At present, the company's Venus-An and P series have been approved overseas, and as Dragonly and CardioValve are expected to be approved overseas, the company will have seafood in all four valve tracks.
Maintain the "buy" rating and lower the list price to HK $10.0. Affected by the recent pullback and internal control events, the company has fallen sharply and its market capitalization has been significantly lower than the market capitalization of its main competitors of HK $40-5 billion. Continue to use DCF to value the company, assuming a WACC of 11.3% and a sustainable growth rate of 3.0%, lowering the target price to HK $10.0.
Investment risk: VenusA series sales are not as expected; internationalization is blocked; collection time is earlier than expected; TAVR permeability increase is not as expected.