The company's revenue growth in 2023 slightly exceeded expectations and achieved its first profit under the adjusted net profit scale.
Although gross margin has declined slightly due to the reduction in collection prices, and the trend may continue, we believe that the scale effect brought about by collection will gradually be reflected, compounded by improvements in operating efficiency, and the company's net interest rate can still be raised to about 14% in 2025. The Beijing-Tianjin-Hebei “3+N” procurement announced the proposed bid results on March 19. The company's overall bid winning situation was ideal. The core products embolization stents and intracranial support catheters were selected, and the market share is expected to increase further. It is expected that 2 neurological interventions and 3 peripheral interventional products will still be approved in 2024, including 2 key products, dense mesh stents and peripheral vascular stitchers, which are expected to further drive the company's revenue growth in the future. Maintain a “buy” rating and target price of HK$16.0.
Revenue growth slightly exceeded expectations, and gross margin declined slightly due to collection. Revenue in 2023 was +58% year-on-year to RMB 530 million (vs company guidance > 500 million yuan), about 5% higher than market expectations; gross margin -3.5 pcts year over year to 72.9%, mainly affected by price reductions for collected products and the company's reduction in prices for uncollected products to gain greater market share. Currently, the company's gross margin of neurological intervention is about 72%-73%. Peripheral intervention accounts for a lower proportion of collected products, which is about 2 pcts higher than the gross margin of neurointervention; adjusted net profit of 7.03 million yuan (IFRS net loss of 78.73 million yuan), and the adjusted net profit scale recorded profit for the first time (vs company guidelines: profit achieved after excluding ESOP in 2023).
Neural intervention: The potentially blockbuster product, the dense mesh stent, is expected to be approved within the year. In 2023, the company's neurological intervention business revenue was +64% to RMB 380 million, and the market share of core products continued to be in the first tier (domestic market share of embolization stents is about 12%, intracranial support catheters are 20%-25%, spring rings are about 10%, and intracranial balloons are about 20%). The results of the Beijing-Tianjin-Hebei “3+N” 28 types of consumables were announced on March 19. The company's core products “Jiaolong” embolization stent (second-generation product group B first, first-generation product is fourth in group A) and Silver Snake intracranial support catheter (first in group A) are all proposed to be selected. Furthermore, the company's dense mesh stent plan was approved within the year, and the domestic market for dense mesh stents is basically occupied by Medtronic and minimally invasive brain science. The company is currently simultaneously promoting research and development for small and large unruptured aneurysms, and is expected to become a new engine for the company's revenue growth in the future.
Peripheral intervention: Avinger products are expected to be approved in 2025. In 2023, the company's peripheral intervention business revenue was +44% year-on-year to RMB 150 million. The core product in the sector, Peripheral DCB, currently accounts for about 22% of the domestic market, and PTA & high-pressure PTA about 12%. The company announced a strategic cooperation with Avinger (AVGR.US) on March 7, involving: 1) product BD (6 catheters & equipment for peripheral artery reduction and CTO channel establishment); 2) production cooperation; 3) overseas sales cooperation; 4) equity investment. It is expected that BD's peripheral arterial intervention products will be approved as early as 2025, and will contribute no less than RMB 20 million in revenue to the company in 2026.
Maintaining a “buy” rating, the target price is HK$16.0. We expect the company's revenue in 2024 to +43% YoY to RMB 760 million, and net profit of 72.1 million yuan (net interest rate 9.5%). We expect the company's 2023-26E revenue CAGR 38%. The company was given a target valuation multiplier of 6.5x 2024E PS, with a target price of HK$16.0.
Investment risks: The impact of collection is greater than expected, surgical penetration rate and device localization rate are increasing slowly, and sales of core products fall short of expectations.