First half and second quarter results are in line with our expectations

The company announced 1H24 results: revenue of 1 billion yuan, +27% year over year; net profit attributable to mother/net profit without return to mother was 0.34/0.33 billion yuan, respectively, +33%/35% year-on-year. Looking at the 2nd quarter alone, the company's revenue was +25% year over year; net profit attributable to mothers/net profit after deduction of net profit other than mother was 0.202/0.191 billion yuan, respectively, +31%/26% year over year. The first half and second quarter results were in line with our expectations.

Development trends

Various businesses are growing steadily. According to the company announcement, looking at 1H24's business segment: 1) Electrophysiological revenue was 0.223 billion yuan, +28% over the same period last year. The company completed 7,500 3D surgeries in more than 800 hospitals, an increase of more than 100% over the previous year. We determined that there were about 4,000 cases in the first quarter, and there were fluctuations in the second quarter due to factors such as holidays and the pace of collection execution. The company said that there was a month-on-month acceleration trend in July-August. We estimate that the company installed more than 100 new 3D devices in the first half of the year; 2) coronary revenue +32%, the number of product admissions +20%; the total number of admissions for vascular intervention products was nearly 4,000; 3) peripheral revenue +40%; 4) OEM revenue was -28%; 5) non-vascular intervention revenue was 0.016 billion yuan.

Gross margin increased sequentially in the second quarter, and profitability was steady. The company's gross profit margin for the second quarter was 73.4%, up 1.4 ppt from month to month. We believe that the recovery in gross margin has benefited from improvements in many businesses, including the removal of the impact of reduced procurement prices in the electrophysiology business, an increase in the share of revenue from high-margin products, and the release of scale effects in peripheral businesses. The company's three expenses all showed a downward trend in the second quarter, and profitability increased steadily.

The research pipeline is progressing smoothly, and it is expected that the core consumables for atrial fibrillation will be approved. As of 1H24, products such as thoracic aortic stents, guide wires, radial artery hemostators, and coronary thrombotic suction catheters have been approved for marketing; venous venous filters, spring rings, peripheral high pressure balloons, etc. are in the registration and repair stage; carotid artery stents, TIPS laminating stents, and abdominal aortic stents have entered the clinical stage. The core consumables for electroatrial fibrillation are PFA catheters, high-density measurement catheters, magnetic positioning pressure ablation catheters, etc. in the registration stage. The company expects the above three consumables to be approved for sale in 1Q25. We believe that at this point, the company will be able to officially enter the largest segment of the electrophysiology market, atrial fibrillation ablation, and the company's electrophysiology revenue is expected to accelerate significantly starting in 2025.

Profit forecasting and valuation

We keep our profit forecast for 2024/25 unchanged. The current stock price corresponds to 47/36 times the 2024/25 price-earnings ratio. We maintain our outperforming industry ratings. Based on optimism about the company's future pipeline, we raised our target price by 11% to 455 yuan (after excluding the impact on share capital), corresponding to the 2024/25 price-earnings ratio of 62/47 times, which has room for an increase of 31% compared to the current stock price.

risks

The price reduction in collection has exceeded expectations, new product development has failed, internationalization has fallen short of expectations, and the competitive landscape has deteriorated.