Investment highlights
Covering Xintong Medical-B (02160) for the first time, gave it an outperforming industry rating, with a target price of HK$18.42, for the following reasons:
The transcatheter valve intervention (TVT) market has great potential, and commercialization prospects are gradually emerging. We expect China's TAVI market size to reach 111-15.5 billion yuan in 2030. Frost & Sullivan predicts that China's TAVI market will reach 392 million yuan in 2019, and is expected to climb to 5.06 billion yuan by 2025, corresponding to the compound growth rate of 53.1% from 2019 to 2025; in 2019, the number of SAVR surgeries in China was about 20,000, and the number of TAVI surgeries was only over 2,000. In addition, Frost & Sullivan predicts that in 2020, the number of people affected by the second or tricuspid valve was more than three times that of those with aortic valve disease, and about 7.5 times that of those with aortic stenosis. Considering that transcatheter mitral valve treatment is still in its early stages, we think the market potential may be greater than that of aortic valves.
The competitive product structure helps the company provide a comprehensive treatment plan for valvular heart disease within the patient's affordability. Xintong Medical specializes in the development and commercialization of transcatheter heart valves and related products, and is committed to becoming a platform for comprehensive TVT treatment plans in China. Currently, the company's main products include TAVI products (VitaFlow series), TMVR products and other surgical ancillary products. In July 2019, VitaflowTM was approved by the Drug Administration. As of July 2020, Xintong Medical sold a total of 872 sets of VitaFlowTM products in China. We expect the company to achieve revenue of 1.86 billion yuan through various heart valve device products in 2025.
Xintong Medical has strong R&D capabilities and a rich management team; it is planning to launch new products. We believe the company's experienced management is expected to lead its outstanding R&D team and continue to advance a competitive product portfolio. As of November 2020, Xintong Medical has two plants in Shanghai, and has hired a third party to build a new plant in Shanghai. The company expects the new plant to be put into use in 2022. The company uses academic promotion methods to bring products to market. As of November 2020, Xintong Medical has successfully entered 18 of the top 20 TAVI hospitals, and more than 120 hospitals in China have performed TAVI surgery using VitaFlowTM products.
What's the biggest difference between us and the market? Compared with the market, we are more optimistic that the company may use Minimally Invasive Group's resource advantages (such as brand awareness, collaboration with other cardiac intervention businesses, etc.) to accelerate the release of VitaFlow series products in terminals; by comprehensively laying out various heart valve product lines, the company is becoming a first-line enterprise in the field of heart valve disease treatment.
Potential catalysts: TAVI product volume exceeds expectations; TMVR product development progress exceeds expectations.
Profit forecasting and valuation
We expect the company's EPS to be -0.16 yuan, -0.04 yuan, and 0.03 yuan respectively from 20 to 22, with a CAGR of X (CAGR to be removed). We expect the company's revenue to be 105 million yuan, 304 million yuan, and 621 million yuan respectively in 20-22, and will reach break-even in 2022. The first coverage gave it an outperforming industry rating. We used the DCF valuation method to value the company and found that the company's target price by 2021 is HK$18.42, with room for growth of 27.4%.
risks
Single product risk; risk of failure in research and development; competition risk; risk of sharp price reduction in product collection; risk of policy supervision; fluctuations in the fair value of financial instruments, etc.
