Investment highlights
For the first time, Coverage Industry Health (06929) gave it an outperforming industry rating. The target price was HK$9.50, which corresponds to a price-earnings ratio of 20/17 times in 2024/25. The company is a cardiovascular device manufacturer with global commercial channels. The reasons are as follows:
In the global cardiovascular market, the penetration rate of high-end products continues to increase. We expect that as the aging population intensifies and minimally invasive interventional procedures continue to penetrate, the market size of high-value interventional devices is expected to maintain high growth on a global scale. According to Insight Consulting data, the global PCI/PTA market reached USD 73/12 billion in 2022, and the 2020-2030E CAGR was 12%/11%, respectively, while neural intervention and heart valve intervention are growing faster.
The revenue system is diverse, overseas channels are mature, and the single market policy is less disruptive. Yeju Medical's founding team was once the exclusive distributor of Cordis in Asia and has decades of experience in commercializing cardiovascular devices. As of 4Q23, Yeju Medical's sales network covered more than 70 countries and regions around the world, and established direct sales networks in China, Japan, Western European countries, Indonesia, etc. Of 1H23 revenue, China/Japan/US/EMEA/Asia Pacific (excluding China and Japan) accounted for 16%/24%/14%/23%/22%, respectively.
We believe that the company's diversified revenue structure can effectively withstand the risks brought about by fluctuations in the single market.
Moving from balloons to comprehensive solutions, new products are expected to continue to be introduced into mature channels. Yeju Medical has been deeply involved in balloon products for more than 20 years, and has the highest share in the world in the fields of coronary/peripheral standard balloons, notched balloons, and CTO balloons. The company is also continuing to expand its platform. It already has new product layouts such as pathway products (high-end microcatheters, extended catheters), neurological interventions (embolization stents, etc.), and valvular interventions (tricuspid valve replacement, aortic valve/mitral valve replacement, etc.). We expect the company to gradually grow from a leading balloon manufacturer to a comprehensive pan-vascular intervention solution provider. Furthermore, we also expect future new products to be quickly introduced into the company's mature direct sales channels in Japan, Western Europe, Asia Pacific and other regions to achieve rapid volume release.
What is our biggest difference from the market? Compared to the market, we are more optimistic about Industrialization Healthcare's mature overseas business channels, which is expected to help the company's performance grow steadily and continuously.
Potential catalysts: Release of products such as three-wire balloons and high-end microcatheters; TricValve and others have reached important milestones in R&D and registration.
Profit forecasting and valuation
We expect the company's 2023-25 EPS to be $0.05/0.06/0.07, respectively, and a CAGR of 32%.
The current stock price corresponds to a 2024/25 price-earnings ratio of 14/12 times. For the first time, we covered the company's outperforming industry rating and target price of HK$9.5, corresponding to a price-earnings ratio of 20/17 times in 2024/25, with 41% upside compared to the current stock price.
risks
The competitive landscape has deteriorated, new product promotion falls short of expectations, R&D has failed, the impact of procurement on prices has exceeded expectations, and mergers and acquisitions have fallen short of expectations.