2023 results fell slightly short of our expectations
The company announced 2023 results: revenue of 232 million yuan, +27% year-on-year; net loss to mother of 94 million yuan (200 million yuan in 2022). As products such as 2H23 remote channel conduits were affected by factors such as multi-provincial collection and increased competition, revenue growth and narrowing losses were slightly lower than our expectations.
Development trends
The release of neurointerventional treatment products is accelerating. In 2023, the company's interventional neurotherapy products (specifically including embolization stents, suction catheters, intracranial balloons, embolization springs, carotid balloons, left atrial occlusions, etc.) earned 98 million yuan, +63% year-on-year, and the revenue share increased to 42% (33% in 2022); pathway products (specifically including distal pathway catheters, microcatheters, microguide wires, etc.) earned 134 million yuan, +9% year-on-year. As the revenue structure changed, the company's overall gross margin increased to 70.5%, +2.6 ppt year; sales expenses ratio was 34.1%, year over year - 18.6 ppt; R&D expenses ratio was 53.3%, year on year - 30.7 ppt. Management expects revenue to increase by around 50% year over year in 2024 and achieve breakeven.
3+N procurement successfully won the bid, and domestic substitution and supply side clearance of the industry may speed up. In March 2024, the company successfully won the bid 1 in the Beijing-Tianjin-Hebei “3+N” Alliance consumables collection for products such as left atrial occlusion devices, intracranial embolization stents, distal access catheters, and thrombus protection devices, and the vast majority were selected as number one. With the further development of procurement in the field of neurointervention, we expect that it will lead to a decline in factory prices and changes in the industry pattern. Leading domestic manufacturers with good cost control capabilities and reliable product portfolios are expected to continue to increase their share, and the domestic substitution process and the supply side of the industry may accelerate.
The R&D pipeline is progressing smoothly. The company expects to launch 5 major neurointerventional treatment devices in the next 2 years, including intracranial medicine balls (innovative device qualification of the State Drug Administration), self-inflating drug stents, carotid artery stents, aneurysm embolization auxiliary stents, and blood flow guidance devices, and will soon complete comprehensive coverage of major surgical treatment products for neurological intervention. We expect these products to contribute new increases in the company's performance.
Profit forecasting and valuation
We keep our 2024 net profit forecast unchanged. For the first time, we introduced a 2025 net profit forecast of 37 million yuan. The current price corresponds to 17 times the 2025 price-earnings ratio. We maintain our outperforming industry ratings. Considering the overall fluctuation in the medical device sector of Hong Kong stocks, we lowered the target price calculated based on the forward price-earnings ratio (15 times price-earnings ratio in 2026) discount method by 20% to HK$28.9, which has 49% upside compared to the current stock price.
risks
The price reduction for collection exceeded expectations, the competitive landscape deteriorated, research and development failed, and the promotion of new products fell short of expectations.