2023 results are in line with our expectations
The company announced 2023 results: revenue of $528 million, +58% year over year; adjusted net profit of 7.03 million yuan (adjusted loss of 25.88 million yuan in 2022). The increase in revenue and turning a loss into profit was in line with our expectations.
Development trends
Neural peripheral two-wheel drive, 2024-25 guidance from management. Both of the company's lines grew strongly in 2023, 1) revenue from neurological intervention +64%, mainly from continuous doses of intracranial support catheters, spring rings, embolization stents, and intracranial balloons; 2) revenue from peripheral intervention +44% year-on-year, mainly from contributions from peripheral medicine balls, PTA balloons, and hyperbaric balloons. Management expects to maintain a relatively rapid growth rate in the future, leading to revenue of $750 million in 2024 and $1-1.1 billion in 2025. In addition, the company's various expense ratios have declined steadily, and has successfully achieved adjusted profit in 2023. The company expects the core net interest rate to be 10%/15-20% in 2024/25. We believe that the company has gradually entered a mature business model and is expected to continue to deliver revenue growth and net interest rate increases in the future.
The bid was successfully won in each collection, and the implementation of the domestic substitution logic was accelerated. Since the beginning of 2023, the company has participated in Henan public hospital collection, Hebei Sanming Alliance collection, Jiangsu Province's ninth round of collection, intracranial spring ring collection, and Beijing-Tianjin-Hebei “3+N” alliance collection. Overall, it has adopted a strategy of actively embracing collection. Core products such as spring rings, peripheral medicine balls, embolization stents, and intracranial support catheters have successively won bids. We believe that collection will help implement domestic replacement logic in the field of neurological and peripheral intervention, and will accelerate supply-side clearance to a certain extent, benefiting leading domestic companies with complete pipelines and good cost control, including Guichuang Bridge.
Innovation and internationalization are expected to continue to drive growth. In terms of research pipeline, the company's products fully cover more than 10 peripheral and neurological segments. In 1Q24, the company's iliac venous stents and second-generation spring rings were successfully approved. The company expects to be approved for new varieties such as dense mesh stents, carotid artery umbrellas, second-generation intracranial balloons, and peripheral vascular stitchers in 2024; in 2025, it will be approved for categories such as subknee medicine balls, peripheral thrombus suction systems, shock wave balloons, intracranial medicine balls, and embolization support stents. In terms of internationalization, overseas revenue in 2023 was 14.27 million yuan, +83% year-on-year, and management expects to maintain rapid growth in the future.
Profit forecasting and valuation
We kept the adjusted profit forecast for 2024 largely unchanged, and introduced an adjusted net profit forecast of $168 million for the first time in 2025. We maintain our outperforming industry ratings. Considering fluctuations in the medical device sector in Hong Kong stocks, we lowered our target price by 14% to HK$14.4 based on the DCF model (WACC 11%, sustainable growth rate 0.5%), corresponding to an adjusted price-earnings ratio of 24 times in 2025, with 49% upside compared to the current stock price.
risks
The price reduction in collection has exceeded expectations, new product development has failed, the competitive landscape has deteriorated, and internationalization has fallen short of expectations.