Focusing on the field of neurosurgery, the size of the company has grown rapidly in recent years

The company is the only company in the field of neurosurgery in China that also has implantable medical device products such as artificial hard brain (spine) membrane patches, craniomaxillofacial repair systems, absorbable regenerated cellulose, and dural medical glue. The compound annual growth rate of revenue in 2018-2022 was 22.8%. As major products are affected by volume procurement and dealer inventory removal, the company's revenue growth rate is expected to slow down in 2023; however, with the implementation of volume procurement policies, negative factors will gradually be eliminated; PEEK craniomaxillofacial repair products are expected to continue to provide rapid growth in the short to medium term; the company's new products, dura mater medical gel and absorbable regenerated cellulose oxide, will usher in rapid release, which is expected to become a new growth point for the company in the future. We expect the company's 2023-2025 revenue to be 228 million yuan, 287 million yuan, 381 million yuan, and 2023-2025 net profit of 0.36 million yuan, 51 million yuan, and 81 million yuan, respectively, corresponding to 2023-2025 PE of 58.9 times, 41.9 times and 26.5 times, respectively, and PEG of 2024-2025 will be 1.03 and 0.45, respectively. We expect the company's profitability to increase further in the future, and it is expected that the valuation will gradually be digested. First coverage, giving a “buy” rating.

Cranial defect material collection is expected to increase the penetration rate of PEEK material in cranial defect repair surgery

China's demand for cranial defect repair continues to grow. It is estimated that the market size of craniomandibular repair and fixation products in China will reach 1.75 billion yuan in 2023. Current Maipu Medical Testing System? The craniomaxillofacial repair system is one of the few domestic products based on PEEK materials and used to repair craniomaxillofacial defects. The company's craniomaxillofacial repair system had an average compound growth rate of 64.2% in 2018-2022. With the introduction of volume procurement of craniomaxillofacial repair products in different provinces in China, the terminal price of PEEK materials has dropped significantly, and the advantages of PEEK craniomaxillofacial repair system products have become more prominent. We expect the penetration rate of PEEK craniomaxillofacial repair surgery to grow rapidly.

The company's new products, Ruigu Meningeal Medical Gel and Jixuting can absorb regenerated cellulose oxide, are expected to create a second growth curve

Absorbable hemostatic yarn is one of the commonly used consumables in surgery. It is estimated that the sales scale of absorbable hemostatic yarn in the domestic market will reach 985 million yuan in 2024. The company Kisutei can absorb regenerated cellulose oxide and obtained CE certification and NMPA approval in 2020 and 2021, respectively. In 2022, the company's Kisutei revenue reached more than 5 million, and there is plenty of room for future growth. We expect that with the Inner Mongolia Health Insurance Administration leading volume procurement of hemostatic materials, the terminal price of the product will be more reasonable, which is expected to increase the penetration rate of hemostatic materials and the share of domestic brands. The company will gradually replace imports with product quality and price advantages. At the same time, the company's absorbable regenerated cellulose oxide is expected to expand product indications and extend to other surgical fields, and the future business growth rate is expected to increase further.

Clinical demand for absorbable meningeal medical gels continues to expand. According to GlobalData and IDAResearch data, the number of medical gels used in the US market in 2020 is about 2.5 times that of meninges. The domestic medical glue market has a good competitive pattern. Currently, only two companies, Sykesis and Maipu Medical, have related product layouts in the domestic meningeal gel market. The company's Ruigu meningeal medical gel was approved for listing in February 2023. We believe that Maipu Medical is deeply involved in the field of neurosurgery, that the combination of products has obvious synergistic effects, and the company has great potential for the development of dural medical gels. At the same time, with the implementation of the procurement of dural (spinal) membrane patch volumes, the cost of original surgical consumables has decreased, which is conducive to increasing the opportunities for use of dural medical glue. Maipu Medical's dural medical glue is expected to become number one in the industry in the future. The initial volume of the product can be compared to Cyxis absorbable dural membrane encapsulation medical adhesive.

Risk warning:

Volume procurement policy uncertainties, and product sales volume fell short of expectations.