The company's revenue in 2023 was +22% year-on-year to RMB 670 million, slightly lower than market expectations. However, benefiting from a marked improvement in gross margin and a decrease in the cost ratio during the period, adjusted net profit recorded a strong 50% year-on-year increase. Regarding the Beijing-Tianjin-Hebei “3+N” collection that the market is paying attention to recently, the company won the bid for embolization stents, support catheters, and microcatheters, but for embolization stents, the number of emboli surgeries in the Union region accounts for ≤ 10% of the country. In the future, it is expected that the impact on the company's revenue growth rate will be limited by increasing the promotion of suction products. We expect revenue to maintain steady growth in 2024, compounded by an expansion in net interest rates. Net profit is expected to record a high growth rate for the whole year, maintain a “buy” rating, and target price of HK$15.5.
Revenue growth in 2023 was slightly lower than expected, but adjusted net profit growth was strong. Revenue in 2023 was +22% to RMB 670 million (China +21%, overseas +45%), and the revenue growth rate was slightly lower than market expectations (Bloomberg's agreed growth rate: +36%); gross margin remained +5.1pcts to 76.9% year-on-year under multi-batch collection execution, mainly benefiting from: 1) The share of owned products in revenue increased; 2) The company implemented a number of supply chain improvement projects; 3) Production costs declined due to scale effects; 4) Logistics and production were affected during the pandemic, and gross margin was on a low basis in 2022; the net profit margin was adjusted to +50% YoY $195 million (net profit reported at $135 million, turning a year-on-year loss into a profit). Furthermore, the company announced a dividend of HK$0.11 per share, the first since listing (dividend rate of 40%; dividend rate of 1.3% based on the closing price of April 2).
Hemorrhagic products: The number of dense mesh stent implants increased significantly after collection in Henan public hospitals. Revenue in the 2023 sector was +42% year-on-year to RMB 430 million, mainly benefiting from the continued release of Tubridge's dense mesh brackets and NUMEN spring rings. After the Henan Public Hospital collection was implemented in May 2023, Tubridge's local implantation volume was +> 150% year-on-year. In addition, the Beijing-Tianjin-Hebei “3+N” spring ring belt volume joint procurement announced the winning results on March 29. NUMEN/NUMEN Silk won the bid at 3,552 yuan/5,880 yuan respectively. The NUMEN bid price was only slightly lower than the winning bid price of 3,588 yuan in the 21 provinces of Jilin, and it is expected that it will not affect NUMEN's factory price. We expect the factory price of NUMEN Silk to be lowered, but sales revenue can still maintain a medium to high growth rate.
Narrow products: Apollo sales are slightly weak, and the 2024 sector growth rate is expected to return to 15%.
Revenue in the 2023 segment was +3% year-on-year to RMB 150 million, and the growth rate was relatively moderate. Although sales of bridge vertebral artery stents, the successor product, grew steadily (revenue increased in double digits year-on-year), Apollo intracranial stents, as mature products, saw a slight year-on-year decline in revenue. It is expected that as Bridge continues to expand, the sector's growth rate will increase to about 15% in 2024.
Acute ischemic products: In the future, more suction products can be promoted in the “3+N” alliance region to counteract the impact of embolic stent failure. Revenue in the 2023 segment was +394% year-on-year to RMB 25.68 million. Acute ischemia products continued to maintain a high growth rate as an emerging sector with a small revenue base.
Products in the Neurohawk embolization stents and X-Track remote catheters won the bid in the “3+N” category 28 consumables collection. The company expects the number of embolization surgeries in the alliance region to account for ≤ 10% of the country. In the future, it will make up for the impact of losing the embolization stent by increasing the promotion of suction products.
Maintaining a “buy” rating, the target price is HK$15.5. We expect the company's revenue/net profit to be +31%/65% YoY in 2024. The growth rate of net profit to mother will be significantly higher than the revenue growth rate due to the reduction in the expense ratio. The company was given a target valuation multiplier of 35x 2024E PE, with a target price of HK$15.5.
Investment risks: The impact of collection is greater than expected, the technical penetration rate and device localization rate are increasing slowly, and sales of core products fall short of expectations.