Adjusted net profit for 2023 exceeded our expectations
The company announced 2023 results: revenue of 666 million yuan, +22% year on year; adjusted net profit of 195 million yuan, +50% year over year. Due to factors such as the 2H23 industry restructuring, which affected the development of some surgeries and the decline in sales of agent products, the revenue side was lower than the 35-40% year-on-year growth guide given by management; due to factors such as product structure optimization and cost reduction and efficiency leading to a sharp increase in gross margin (+5.1ppt year over year), good management cost control, and a year-on-year decline in financial expenses, the adjusted net profit exceeded our expectations.
Development trends
Proprietary products grew steadily in 2023. By sector: 1) Revenue from bleeding products was 425 million yuan, +42% year-on-year. NUMEN spring rings continued to benefit from collection, and the number of admissions increased by 350 to a total of 900. Tubridge's dense mesh stents helped second-line and primary hospitals, increasing the number of admissions by 250 to a total of 1,000. 2) Revenue from narrow products was 153 million yuan, +3% year-on-year. The Bridge vertebral artery stent and Diveer intracranial balloon were successfully placed. 3) Revenue from acute ischemia products was 0.26 million yuan, +394% year-on-year. Products such as latch brackets can be quickly connected to networks in various provinces. The suction catheter and balloon catheter were successfully approved. 4) Channel product revenue was 59 million yuan, -36% year-on-year. The main reason is that the company took the initiative to adjust the proportion of agent products. The company's own products are growing well, supporting clinical use of catheters +120% over the same period last year. In terms of internationalization, overseas revenue of 32 million yuan was achieved in 2023, +45% compared to the same period last year.
The 2024 guidance revenue was +30% YoY, and the profit margin remained 30%. Management gave 2024 performance guidelines: revenue +30% YoY, including bleeding +25-30%, stenosis +20%, acute embolization +200%, and channel +40% YoY. Management also expects overseas revenue to double in 2024. The company expects the gross margin to remain above 70% in 2024; the total cost ratio will decrease by 5-8ppt; the sales expense ratio is expected to be 18-20%, the R&D expense ratio is 16-18%, and the management cost ratio is 7-8%. The company expects a net profit margin of around 30%.
The R&D pipeline is progressing smoothly. As of 1Q24, the company's TB Plus dense mesh stents, Neurohawk 2 generation embolization stents, and remote umbrellas have submitted registration applications with the National Drug Administration. The company expects the above three products to be approved for marketing within 2024. The absorbable spring ring completed the FIM clinical trial, the intracranial full imaging stent was in the registered clinical enrollment group, and the intracranial medicine ball completed the first registered clinical enrollment. The company expects 12 key products to be launched one after another in the next 5 years.
Profit forecasting and valuation
Due to the good control of the company's expenses and the improvement in the revenue structure leading to an increase in gross margin, we raised the 2024 adjusted net profit forecast by 34% to 255 million yuan, and introduced the 2025 adjusted net profit forecast of 326 million yuan for the first time. We maintain our outperforming industry ratings. Due to systemic pressure on the Hong Kong stock equipment sector, we lowered our target price based on the DCF model (WACC 10.4%, sustainable growth rate 0.4%) by 31% to HK$12.5, with 49.9% upside compared to the current stock price.
risks
The price reduction of collection exceeded expectations, the competitive landscape deteriorated, internationalization fell short of expectations, and R&D failed.