Core views

The company's performance in 2023 was in line with expectations, and the number of 3D surgeries achieved high growth. Looking ahead to 2024, on the one hand, the number of surgeries in the second half of last year was affected by increased industry compliance requirements. At the same time, it has basically returned to normal. At the same time, the industry penetration rate continues to increase. It is expected that the number of surgeries in the industry will grow well this year. On the other hand, the company's high-density standardized catheters, pressure ablation catheters, and cryo-ablation catheters have been approved domestically in the past two years, breaking the monopoly of importers in the atrial fibrillation market. The company's 3D surgery volume is expected to maintain a high growth trend. In particular, its share in the atrial fibrillation market is expected to accelerate. In addition, the company will continue to expand overseas markets. Pressure ablation catheters and fourth-generation 3D measurement systems obtained EU CE certification last year, which will further enhance the company's overseas brand influence, and overseas business is expected to achieve high growth.

occurrences

On March 29, 2024, the company released its 2023 annual report

According to the company's announcement, the company achieved revenue of 329 million yuan in 2023, an increase of 26.46% over the previous year; achieved net profit of 5.69 million yuan, an increase of 85% over the previous year; realized net profit deducted from mother of 35.47 million yuan (-11.39 million yuan in the same period last year). Basic earnings per share were 0.0121 yuan/share. There will be no profit distribution or capital increase from capital reserves in 2023.

Brief review

Performance was in line with expectations, and overseas revenue achieved high growth

The company achieved revenue of 329 million yuan in 2023, an increase of 26.46% over the previous year; achieved net profit of 5.69 million yuan, an increase of 85% over the previous year; realized net profit of 35.47 million yuan (-11.39 million yuan in the same period last year), which is in line with expectations. The company lost money after deducting non-net profit. On the one hand, Fujian Union Electrophysiology Centralized Volume Procurement began to be implemented in various provinces in the second quarter of last year, and the gross margin of new products such as superimposed pressure catheters was still climbing, leading to a decline in the company's gross margin; on the other hand, the company increased its market development efforts and continued to enhance R&D innovation, and sales and R&D investment increased year-on-year. The company achieved revenue of 93 million yuan in a single quarter in 23Q4, an increase of 36% over the previous year, achieving net profit attributable to mother of 5.83 million yuan and net profit deducted from non-return to mother of 18.02 million yuan.

By product, the company's revenue for catheter products was 219 million yuan, up 32.03% year on year, revenue from equipment products was 16.67 million yuan, down 60.00% year on year, and revenue from other products (accessories such as puncture needles and guide sheaths) was 84 million yuan, up 68.87% year on year. At home and abroad, the company's domestic revenue was 255 million yuan, up 17.15% year on year; overseas revenue was 68.9 million yuan, up 59.50% year on year, accounting for 20.93% of total revenue (16.59% in the same period last year), mainly due to the company continuing to increase overseas academic promotion and market development efforts to actively build its own brand influence.

Domestic and foreign markets are expanding rapidly, and the volume of 3D surgeries is growing rapidly. The company's pressure ablation catheter is the first domestically produced pressure catheter approved for marketing by the NMPA. Since its launch, it has completed more than 1,000 radiofrequency ablation surgeries under pressure monitoring guidance at many centers. In August 2023, the company's balloon cryoablation catheter and cryoablation equipment obtained NMPA registration certificate, becoming the first domestic cryoablation product approved for atrial fibrillation treatment. Up to now, it has been connected to the Internet in more than 20 provinces. By the end of 2023, the company's products had covered more than 1,000 hospitals across the country, and the total number of 3D surgeries had exceeded 50,000, ranking third among domestic 3D electrophysiological surgeries and number one among domestic manufacturers.

In overseas markets, the company further strengthens its international sales network, accelerates the development and training of overseas business agents, showcases the company's full product solutions through various academic activities, and continuously enhances brand awareness. By the end of 2023, the company's business covered 35 countries and regions. A total of 21 products had obtained CE certification, 4 products had obtained US FDA registration license, 1 product had obtained UK UKCA certification, and 20 products had obtained Brazilian registration certificate.

The number of surgeries is expected to maintain a high growth trend in 2024, and the volume of atrial fibrillation consumables is expected to accelerate in 2024. On the one hand, the number of surgeries in the second half of last year was affected by increased industry compliance requirements and has now basically returned to normal. At the same time, the industry penetration rate continues to increase. It is expected that the number of surgeries in the industry will grow well this year. On the other hand, the company's high-density standardized catheters, pressure ablation catheters, and cryo-ablation catheters have been approved domestically in the past two years, breaking the monopoly of importers in the atrial fibrillation market. The company's 3D surgery volume is expected to maintain a high growth trend. In particular, its share in the atrial fibrillation market is expected to increase at an accelerated pace. In addition, the company will continue to expand overseas markets. Pressure ablation catheters and fourth-generation 3D measurement systems obtained EU CE certification last year, which will further enhance the company's overseas brand influence, and overseas business is expected to achieve high growth.

The company's product range is rich and complete, and the market share in the field of atrial fibrillation is expected to continue to increase, and the company's product development and registration are progressing smoothly. In terms of new product development, up to now, the pressure pulse ablation catheter project has completed clinical enrollment and has entered the follow-up stage; by investing in Shanghai Shangyang Medical Technology Co., Ltd., the company has accelerated the improvement of the PFA research and development agency to promote the collaborative layout of the three “radiofrequency+freezing+pulsed electric field” energy platforms; and the renal artery ablation project has entered the clinical trial stage. In terms of research and development cooperation, the company continues to promote cooperation with Stereotaxis. The company has submitted a registration application for its core product, the fifth-generation “pan-vascular interventional robot magnetic navigation system”. It is expected to obtain NMPA registration approval in 2024, and the magnetic navigation ablation catheter jointly developed with Stereotaxis has submitted an application for registration. The company has a comprehensive layout of research pipelines and a complete technical platform. In the future, through continuous enrichment of the research pipeline and continuous improvement of product capabilities, it is expected to further seize the market share of atrial fibrillation surgery.

With a forward-looking layout of the RDN circuit, the core products are expected to be approved for marketing in 2025. According to Frost & Sullivan data, the number of patients with refractory hypertension in China reached 48 million in 2019. Currently, there is no effective clinical treatment plan for intractable hypertension. Renal artery ablation (RDN) lowers blood pressure by damaging the sympathetic and outgoing nerves of the kidney and weakens renal and systemic sympathetic activity, and is expected to be one of the most effective clinical treatment options for patients with refractory hypertension. Microelectrophysiology has a forward-looking layout on the RDN circuit. The Flashpoint renal artery radiofrequency ablation catheter independently developed by the company entered the national special approval process for innovative medical devices in 2017. The product has a special spiral structure to ensure that multiple electrodes adhere to the blood vessel wall at the same time, and can be used in conjunction with the company's Columbus 3D cardiac electrophysiological labeling system to achieve accurate positioning and ablation surgery under 3D guidance, reduce X-ray damage to operators and patients, and improve the success rate of surgery. The product completed its first clinical enrollment in March 2023 and is expected to be launched in 2025. After the product is launched, it is expected to provide the company with a continuous growth engine for performance in the medium to long term.

Gross margin declined due to collection. R&D investment continued to increase in 2023. The company's gross margin reached 63.51%, down 5.60 percentage points from the previous year. On the one hand, due to adjustments in the factory price of the company's collected products after the implementation of the Fujian Union's electrophysiological collection results, and on the other hand, the gross margin of the company's new products such as high-density measurement catheters and pressure catheters is still climbing. The increase in the revenue share of new products had a slight impact on the overall gross margin. The sales expense ratio was 33.20%, up 2.08 percentage points from the previous year. It is estimated that due mainly to the increase in the company's sales scale, sales team labor costs and marketing costs increased accordingly. At the same time, due to the impact of the epidemic in the same period last year, sales activities stagnated in some regions. However, sales activities fully resumed last year, and sales expenses increased accordingly. The management expense ratio was 12.41%, down 1.49 percentage points year on year; the financial expense ratio was -1.81%, up 1.89 percentage points year on year, mainly due to a decrease in interest income from the company's purchase notice deposit; the R&D expense ratio was 27.74%, down 1.81 percentage points year on year. It is expected that R&D expenses will increase 18.69% year on year, mainly due to the increase in the company's R&D projects, corresponding labor costs, experimental testing costs and equipment depreciation expenses.

The net cash flow from operating activities in 2023 was -37.97 million yuan (-9.38 million yuan for the same period last year). On the one hand, the company prepared key raw materials to cope with volume procurement and the impact of the international situation on the supply chain; on the other hand, the company introduced external talent, and salary expenses increased.

The company's inventory turnover in 2023 was 313.75 days, an increase of 18.40 days over the previous year. It is expected mainly due to the company's early preparation of raw materials. The number of accounts receivable turnover days was 49.70 days, up 6.62 days year on year, and the number of accounts payable turnover days was 88.50 days, up 9.39 days year on year. Other financial indicators are generally normal.

One of the leaders in the domestic electrophysiology industry, optimistic about the company's long-term development space, the company is one of the leading domestic electrophysiology leaders. It is also one of the few manufacturers in the global market that has completed a complete layout of cardiac electrophysiology equipment and consumables at the same time, and has broad room for future growth. In the short term, the company's electrophysiological surgery is expected to maintain a high growth trend; in the medium term, the approval of high-density labeling catheters, pressure-sensitive ablation catheters, and cryoablation products indicates that the company has completed the full product line layout of atrial fibrillation surgery consumables, and the atrial fibrillation surgery market share is expected to increase at an accelerated pace. In the long run, on the one hand, the company continues to deploy new technologies and products such as pulse ablation (PFA) and renal artery ablation (RDN), which is expected to further enrich the company's product pipeline and enhance the company's overall competitiveness; on the other hand, the penetration rate of the domestic electrophysiology industry is still low, and there is plenty of room for future penetration rate improvement, laying the foundation for long-term sustainable growth in the company's performance. We expect the company's revenue to increase by 41%, 35%, and 35%, respectively, in 2024-2026, and net profit to mother by 389%, 131%, and 75%, respectively. Maintain a “buy” rating.

Risk warning

Due to industry policy factors such as increased compliance requirements in the medical industry, the admission of some new products may be affected, and there is a risk that our performance predictions may not be met; there is a risk that the collection and execution progress will fall short of expectations; there is a risk that the company will still need to maintain a large R&D investment in the future. If the progress of the R&D project or commercialization of the product falls short of expectations, it may cause the company's losses to expand further in the short term, thereby adversely affecting the company's daily operation and financial situation; the risk of not being profitable; the risk of not being profitable; the risk of developing innovative technology and products; risk of developing core technology Talent loss risk; business channel management risk; market competition risk; product quality and potential liability risk; exchange rate fluctuation risk; geopolitical risk.