2023&1Q24 Profit Exceeds Our Expectations

The company announced 2023&1Q24 results. Revenue in 2023 was 1.65 billion yuan, +36% YoY; attributed/deducted non-net profit was $534/468 million, respectively, or +49%/+46% YoY. 1Q24 revenue was 455 million yuan, +30% year-on-year; attributed/deducted non-net profit was 140/137 million yuan, respectively, +36%/+52% YoY. Due to the continued increase in coronary/peripheral gross margin and good control of various expenses, the 2023 and 1Q24 profit margins exceeded our expectations.

Development trends

The volume of 3D electrophysiology surgeries is growing rapidly. We judge that the number of 3D surgeries in the full year of 2023 and 1Q24 was around 10,000 units/4,000 units, respectively, and more than 150% compared to 1Q24. We anticipate that the company may perform more than 18,000 surgeries in 2024, corresponding to an 80% year-on-year growth rate. As electrophysiological harvesting is implemented one after another in various provinces, we expect that the decline in gross margin caused by the company's factory price adjustments will basically come to an end, and it is expected that the future will pick up as cost reduction and efficiency increase and new product sales volume. We expect the company's channel inventory to be at a normal level (about 1-2 months), and the number of product shipments and terminal surgeries may maintain a relatively consistent growth rate.

Channel consumables are growing steadily, and there is still room to increase their share. In 2023, coronary pathway revenue was 791 million yuan, +39% year over year, gross margin +2.5 ppt to 71.9% year on year; peripheral intervention revenue was 256 million yuan, +40% year over year, and gross margin +3.1 ppt to 74.8% year over year. We determine that 1Q24 coronary and peripheral revenue increased by about 30%/40% year over year, respectively, along with a further increase in gross margin. We estimate that by the end of 2023, the localization rate of coronary access/peripheral access consumables was only about 30%/10-20%, respectively. We expect that leading domestic companies represented by Huitai will still have room to continue to increase their share, and the revenue side may maintain a faster growth rate than the industry's natural increase in surgery volume in the future.

The research pipeline continues to advance, and there may be intensive harvesting in 2025. As of April 2024, thoracic aortic laminating stents have been successfully approved for marketing, and pressure radiofrequency catheters/pulse ablation catheters have been registered for clinical follow-up. In addition, many high-value-added therapeutic products such as venous venous filters, thoracic branch stents, abdominal stents, carotid stents, IVUS, shock wave balloons, vascular stitchers, and TiPS laminating stents are under development. We believe that the company has gradually grown into one of the leading domestic companies in the pan-cardiovascular field.

Furthermore, the company officially entered the field of non-vascular intervention (urination, digestion, etc.), contributing 16 million yuan in revenue in 2023.

Profit forecasting and valuation

Based on optimism about the company's electrophysiological/peripheral/coronary business, we raised our 2024 net profit forecast by 9% to 720 million yuan, and introduced the 2025 net profit forecast of 939 million yuan for the first time. The current stock price corresponds to 46/35 times the 2024/25 price-earnings ratio. We maintain our outperforming industry rating. Based on our optimism for the company's core consumables for electrophysiology and vascular interventional treatment, we raised our target price by 46% to 597 yuan, corresponding to a price-earnings ratio of 55/42 times in 2024/25, which has 21% room to rise compared to the current stock price.

risks

The registration process for new products fell short of expectations, the price reduction exceeded expectations, the competitive landscape deteriorated, and research and development failed.