Recommended logic: 1) The volume of electrophysiological surgeries continues to grow, driving the expansion of the electrophysiological device market. The number of 3D electrophysiological surgeries rose to 0.248 million units in 2022, and the domestic electrophysiological device market had a compound growth rate of 28.4% in 2017-2021. The electrophysiological device market is expected to reach 12.55 billion yuan in 2024, and the industry continues to expand; 2) The localization rate is only 10%, and domestic products are gradually entering the atrial fibrillation treatment field, which has long been monopolized by foreign brands. The company took the lead in breaking through compared to other domestic manufacturers in the field of atrial fibrillation; 3) Volume procurement was launched one after another to help the domestic replacement process.
The volume of electrophysiological surgeries continues to grow, driving the expansion of the market for electrophysiological devices. The expansion of the market size of the electrophysiology industry is more related to the patient population base and the number of surgeries (surgical penetration rate). According to the 2022 National Health Commission's Arrhythmia Interventional Quality Control Center survey and Frost & Sullivan research, the number of surgeries using catheter ablation for arrhythmia patients in China continued to increase, from 0.118 million in 2015 to 0.212 million in 2020, with a compound annual growth rate of 12.4%. Currently, the penetration rate of 3D electrosurgery in China is about 1%, and there is plenty of room for further improvement. Driven by factors such as the aging of the population, the increase in the number of patients with arrhythmia, and the popularity of ablation surgery and the upgrading of ablation surgical consumables, the number of electrophysiological 3D surgeries rose to 0.248 million in 2022 (including 43% atrial fibrillation, 34% supraventricular velocity, 16% ventricular and ventricular velocity, 7% atrial velocity and atrial flutter). The size of the domestic electrophysiological device market also soared as the number of surgeries increased, from 2.42 billion yuan in 2017 to 6.58 billion yuan in 2021, with a compound annual growth rate of 28.4%. The market size of electrophysiological devices is expected to reach 12.55 billion yuan in 2024, and the industry continues to expand.
The localization rate is only 10%, and domestic products are gradually entering the field of atrial fibrillation treatment, which has long been monopolized by foreign brands. China's electrophysiology market is in a stage of rapid development and independent innovation, and has achieved technological breakthroughs and domestic substitutions in some fields. Due to the advanced technology of foreign manufacturers and the early launch of their products, they occupy the vast majority of the domestic electrophysiology market. Johnson & Johnson, Abbott, and Medtronic held nearly 88% of China's market share in 2020.
Among domestic manufacturers, Huitai Medical, Xinopu Medical, Microelectrophysiology, etc. have a total market share of about 10%. In the field of 3D surgical treatment of atrial fibrillation, where 3D surgery accounts for more than 40%, it has long been monopolized by imported brands. The company took the lead in breaking through in the field of atrial fibrillation compared to other domestic manufacturers. In 2022, it was certified as a pressure-sensitive magnetic positioning radiofrequency ablation catheter and a high-density labeling catheter, and officially entered the field of atrial fibrillation treatment. Furthermore, the company IceMagic? The cryoablation series products were approved by the NMPA for marketing in August 2023, filling the gap in domestic production. In terms of pulsed PFA ablation technology, by investing in Shanghai Shangyang Medical Technology Co., Ltd., the company accelerated the improvement of the PFA research and development network, promoted the collaborative layout of the three “radiofrequency+freezing+pulse” energy platforms, and formed a competitive advantage for platform-based products.
Volume procurement has been implemented one after another, and the RF ablation business volume has increased significantly. On April 4, 2023, the Fujian Provincial Medical Security Bureau issued the “Notice on Implementing the Work Related to Centralized Volume Procurement of Interventional Cardiac Electrophysiology Medical Consumables”. Since then, 27 provinces across the country have begun implementation, with an average price drop of 49%.
Since then, Beijing and Tianjin have begun collecting, which has accelerated the domestic substitution process. Although the company's factory price was lowered, volume increased significantly, driving 23Q3-24Q1 revenue +34%, +36%, and +71% year-on-year. At the same time, with the increase in the company's new product volume and cost reduction and efficiency management, it is expected that gross margin will rebound in the future.
Profit forecasting and investment advice. The compound growth rate of net profit to mother is expected to reach 151% in 2024-2026. The company's performance has just passed the profit balance point, and the price-earnings ratio is at a high level, so PS is used for relative valuation.
Due to the scarcity of electronic indicators in China and considering that the company's major products such as TrueForce and IceMagic have entered the release period, the company was given 25 times PS in 2024, corresponding to a target price of 24.46 yuan, which covered the “buy” rating for the first time.
Risk warning: R&D risks of innovative technology and products, risk of losing core technical personnel, risk of management of business channels, risk of falling overseas as expected.