The favorable renewal policy is clear, and I am optimistic about the logic of a potential sharp rise in volume and price
On April 30, 2024, the National Health Insurance Administration issued Artificial Joint Collection and Renewal Document No. 2. According to the announcement, we believe that Elken Medical is a domestic target that benefits the head, based on: 1) This joint coverage amount is large. The average share of the company's hip and knee demand is about 15%, ranking among domestic companies. 2) The company's knee joint reporting volume increased significantly. Considering that the bid price for hip joints in the previous round was lower than that of other domestic manufacturers, and the most effective bid price for this renewal was quite impressive and the revival price was relatively moderate, hip products are expected to unlock potential terminal price increases. We believe the company is expected to achieve 30% + year-on-year increase in revenue and 40% + year-on-year increase in net profit to mother in 2024 (regardless of the impact of contract renewals). We expect the company's EPS for 2024-2026 to be 0.24/0.31/0.40, and give Elken 32 times PE in 24 years (considering the company's collection risks and impacts are basically clear, adding a potential boost in joint renewal coverage, giving a premium of 28 times PE compared to its A-share peers unanimously predicting 28 times PE), and obtain a target price of HK$8.35 to maintain the “purchase”.
Volume: Domestic production is among the highest in the number of repeat sales. I am optimistic that the next round of tendering will continue to be released 1) Knee joint: The annual purchase demand for knee replacement joints this time is 46,491 units (40% increase over the previous round), accounting for 15.73% of the demand (domestic production ranks second). We are optimistic that the company's knee products will rely on their differentiated competitive advantages and are expected to continue to expand their market share through this renewal of procurement. 2) Hip joint: The number of pottery - pottery, gold - ju/pottery - collected in the current round was 14,569/1,193/24,909, respectively, with a comprehensive market share of 14.22% (down 1.58 percentage points from the previous round of harvesting, mainly due to low bid prices affecting channel promotion and hospitalization). Considering that the company's share of demand for hip joint products is basically steady, it is expected that the product will be released quickly through a relatively flat price after the renewal collection is implemented.
Price: The knee joint has room for potential terminal price increases. I am optimistic that the hip channel relationship will be rationalized 1) Knee joint: The company won the bid price in the last round of collection was lower (4,599 yuan), and the highest bid price/revival price for this renewal of the knee joint reached 6,877/5,434 yuan respectively. We are optimistic that the company's knee sector has room for potential terminal price increases in this renewal, which is expected to achieve further volume. 2) Hip joint: The company's bid price in the last round of procurement was lower than that of other domestic manufacturers. We are optimistic that the hip segment of this contract renewal company has room for potential factory price increases. The company is expected to rationalize channel relationships and continue to promote market expansion through contract renewal.
Varieties inside and outside the joint scale are recovering steadily, and traumatic spine sales are growing steadily 1) Trauma field: Liber will renew the bid again in 2023, optimistic about the steady starting logic for the next standard period. 2) The 3D printing series in the spine field achieved rapid launch (262 new hospitals were added in 23 years, including 52 provincial hospitals), and the revenue share of collection-related varieties is relatively low. We are optimistic that the spine sector will have a 5% market share impact within 5 years. In summary, considering that the company's collected products are back in place one after another and joint contract renewals drive potential room for volume and price increases, we are optimistic that the compound net profit growth rate of the company will reach 30% + during the next round of the standard period.
Risk warning: Risks related to contract renewal, increased market competition, risks related to new product launch/promotion, risk of surgical volume recovery falling short of expectations.