Revenue grew 34% YoY to RMB301m in 1H24, of which RMB130m (+21% YoY) and RMB171m (+46% YoY) were from TAVR and neuro- interventional business, respectively, in line with the operating data released in July. Net loss narrowed from RMB212m in 1H23 to RMB71m in 1H24, beating our estimation. The management reiterated its guidance of (i) 23%-27% of TAVR market shares, (ii) 30%- 40% YoY growth in neuro-interventional business, (iii) significant loss reduction in 2025, and (iv) breakeven in 2026. Peijia's comprehensive portfolio layout helps meet different patient demands and will enhance its competitive edges from 2025 onwards. Maintain TP of HK$4.2 and BUY rating.
Key Factors for Rating
Net loss significantly narrowed to RMB71m in 1H24, beating our expectation: revenue grew 34% YoY to RMB301m in 1H24, of which RMB130m (+21% YoY)/RMB171m (46% YoY) were from TAVR/neuro-interventional business, in line with the operating data released on 25 July. Overall gross margin declined by 4ppts to 73%, with 82% (-5ppts YoY) in TAVR and 66% (-2ppts YoY) in neuro-interventional products, mainly due to (i) price cut on TAVR products, (ii) GPO on neuro-interventional products. Improved operating efficiency led to significant net loss narrowing. S&M, administrative, and R&D expenses ratio decreased by 26ppts, 7ppts, 43ppts to 50%, 21%, 33%, respectively. By segment, neuro-interventional realised operating profits of RMB29m, exceeding management's guidance of RMB10-20m profits in 2024, and commercialisation- wise profits of TAVR were also close to breakeven for TAVR business (-RMB2.5m). Overall, net loss narrowed from RMB212m in 1H23 to RMB71m in 1H24, beating our estimation. The management reiterated its guidance of (i) 23%-27% of TAVR market share, (ii) 30%-40% YoY growth in neuro-interventional business, (iii) significant loss reduction in 2025, and (iv) breakeven in 2026. As of 30 June 2024, Peijia has cash of RMB831, and operating cash outflow decreased from RMB470.3m in 1H23 to RMB41.4m in 1H24 and the remaining milestone payment for BD projects was less than RMB290m.
Updates on TAVR business: Peijia completed c.1,750 TAVR implants, indicating a growth of c.40% YoY vs. c.20% in the industry. The outpaced growth increased Peijia's market share in China's transfemoral TAVR market to c.25%. Patient allowance decreased to c.RMB10,000/implant. The number of covered hospitals increased by 93 to 582, while the number of salesforces decreased by 2 to 198. With the improved output per salesperson, S&M expenses of TAVR business declined by 14% YoY in 1H24. The management does not expect substantial increase in S&M expenses in the short term despite TauruMax being launched in August 2024 and TaurusNXT (dry-tissue TAVR) to be launched in YE25/26. As the patient enrolments of the three registered clinical trials (TaurusTrio (AR), TaurusNXT, and GeminiOne (TMVr)) were completed in the first half of 2024, subsequent R&D expenses ratios are expected to gradually decrease. The management expects accelerating implantation in 2H24 compared to 1H24.
Key Risks for Rating
1) Intensified competition in valve market; 2) slower-than-expected ramp-up of TAVR products and R&D progress; 3) GPO risk on neuro-interventional product; 4) further price cut on TAVR products.
Valuation
Peijia showcased its executive ability and comprehensive pipeline layout in transcatheter heart valve systems. Its TAVR portfolio with price stratification not only meets different demands but also could deal with potential GPO on TAVR in the future. Post results, we edged up 2024-26E topline forecasts by 2%-3%. Considering its improved operating efficiency in 1H24, we narrowed our 2024 net loss forecast by 40%. We lowered long-term gross margin for TAVR to reflect the potential impact from centralised procurement. Maintain TP of HK$4.2 (WACC: 11.1%, terminal growth: 2.0%) and BUY rating.
