The company was removed from the Hong Kong Stock Connect list on September 10 due to the adjustment of constituent stocks in the Hang Seng Composite Small Cap Index. Currently, market concerns are mainly reflected in: 1) fundamental concerns about the slowdown in TAVI implantation growth and intensification of competition and collection in the TAVI and neurointervention industry; 2) concerns about the impact of transactions and capital on the company's stock price after the “launch” of the Hong Kong Stock Connect. We believe that concerns about fundamentals have been fully reflected in previous stock price pullbacks. The biggest factor that suppressed stock prices in the short term was pressure at the trading level after “clearance.” Furthermore, we believe that the market is paying more attention to the company's TAVI business, and has not given sufficient valuation to the rapidly growing neurointervention business, and the current stock price does not really reflect the company's value. Maintaining a “buy” rating; target price of HK$7.5.

The value of the company is undervalued by the market. Focus on potential purchase points: due to the adjustment of constituent stocks in the Hang Seng Composite Small Cap Index, the company was removed from the Hong Kong Stock Connect list on September 10. Currently, market concerns are mainly reflected in: 1) fundamental concerns about the slowdown in TAVI implantation growth and intensification of competition and collection in the TAVI and neurointervention industry; 2) concerns about the impact of “circulation” on the company's stock price in terms of transactions and capital. We believe that concerns about fundamentals have been fully reflected in the previous stock price correction. The biggest factor suppressing stock prices in the short term was the selling pressure of Hong Kong Stock Connect shares after the “exit”. Furthermore, we believe that the market is paying more attention to the company's TAVI business, while some have ignored the excellent performance of the company's neurological intervention business, have not fully valued the neurological intervention business, and the company's value is undervalued by the market. We believe that potential stock price turning points and catalysts include: 1) exhaustion of “clearance” gaps; 2) valve harvesting and achieving price in exchange for volume; 3) the company's profit in 2026; 4) rapid release of new products such as TaurusRio after launch; and 5) re-entry into Hong Kong Stock Connect.

1H24 revenue growth slowed slightly, but due to scale effects, the company steadily reduced losses. The company's 1H24 revenue was RMB 0.3 billion (+34% YoY), of which: 1) Heart Valve: The 1H24 segment had revenue of RMB 0.13 billion (+21% YoY), with 1,750 implants (+40% YoY). The company reduced the factory price during the period, causing revenue growth to lag behind the growth rate of implants. The company's share of the stock market was +3pcts to 23% for the full year of 2023 (based on 7,500 implants in the 1H24 industry); 2) Neural intervention: revenue from the 1H24 sector was RMB 0.17 billion (+46% YoY), and revenue from hemorrhage/ischemia/pathway products was +73%/+28%/+46% year-on-year. Among them, hemorrhagic lines increased significantly due to rapid injection of spring rings. The gross margin of the Shinsuke sector fell 1.9 pcts year over year due to the reduction in collection prices, but as the scale effect was reflected, the 1H24 sector recorded a profit for the first time (operating profit margin of 17%). In addition, the company recently became the exclusive distributor of Nuanyang Medical YonFlow dense mesh stents in Greater China, and the product is expected to be approved domestically within the year. The company's 1H24 net loss to mother was 71.28 million yuan (vs 1H23 loss 0.21 billion yuan), a year-on-year reduction of 66%.

The current stock price does not reflect the real value of the company and maintains a “buy” rating. The target price is HK$7.5.

We continue to use DCF to value the company (WACC: 10.8%; sustainable growth rate: 2%). The model assumes that heart valves will face collection in most provinces of the country in 2026, with a target price of HK$7.5 (target market value of HK$5.1 billion, and a target valuation of HK$2.8 billion for its central valves/neurological intervention business).

Investment risks: Competition in the industry intensified; the impact of collection exceeded expectations; TAVR penetration rate increased slowly; internationalization fell short of expectations.