On 25 July, Peijia announced its unaudited operating data with revenue of RMB290m-310m in 1H24, indicating 28.9%-37.8% YoY growth, which was below our expectations. On the same day, Peijia's partner JenaValve was acquired by Edwards Lifesciences, showing that Peijia has a good eye for BD selection. The management maintained the guidance of achieving (i) 23%-27% market share of TAVR industry in 2024, (ii) 35%-45% YoY growth in neurointerventional business in 2024, (iii) profit turnaround in neurointerventional business in 2024, and (iv) breakeven in 2026. We revised down revenue growth in the short to long term to reflect slower-than-expected market growth (e.g. 20% YoY implants growth in 1H24), ex-factory price cut on first/second generation products, etc. Cut TP to HK$4.2. Eyes on the launches of new products.

Key Factors for Rating

28.9%-37.8% YoY growth of revenue in 1H24: On 25 July, Peijia announced its unaudited operating data with revenue of RMB290m-310m in 1H24, indicating 28.9%-37.8% YoY growth, which was below our expectation, mainly due to ASP reduction on TAVR. Peijia held a business updated call during the HKEX lunch break. According to the management, c.40% and c.60% of the total revenue came from TAVR business and neurointerventional business, respectively. For TAVR business, Peijia has completed c.1,750 TAVR implants in China in 1H24, indicating c.40% YoY growth, in line with our expectation, while it initiatively reduced the ASP of the first/second generation of TAVR products as the price strategy for new products to launch within 1-2 years (including 1.5/2.5 generation of TAVR, TaurusNXT (non-glutaraldehyde crosslinked dry- tissue TAVR), and TaurusTrio (TAVR for aortic regurgitation (AR)), leading to only 20%+ YoY growth in TAVR business in terms of revenue. The management expects a stable ASP in the remaining of this year and next year. As per management, the overall implantation growth of TAVR (transfemoral) in 1H24 was about 20% YoY. Neurointerventional business witnessed rapid growth in 1H24, with a YoY growth of 45% in revenue, despite the impact from centralised procurement of neurointerventional products.

Benefits from Edward Lifescience's acquisition of JenaValve: On the same day, Peijia's partner Jena Valve, of which Peijia has 1.91% equity interests and from which Peijia obtained the exclusive license to develop JenaValve Trilogy (TaurusTrio) in China, was acquired by Edwards Lifesciences (EW.US/NR), the leading player globally in TAVR industry. After the acquisition, Peijia expects gains on the investment of close to RMB100m and an exemption of the future payment obligation to JenaValve. Peijia has completed the technology transfer of JenaValve, which entitled Peijia to product manufacturing and product design iteration, etc. In China, the patient enrolment of TaurusTrio was completed in January 2024 and TaurusTrio is expected to be approved in late 2025 or early 2026. In the overseas market, Trilogy has received CE Mark and is expected to be approved in the US in 2025.

Key pipeline updates: Peijia has completed registrational patient enrolment of GeminiOne (TMVr, TEER), TaurusNXT, and TaurusTrio in 1H24 in China. The patient enrolment of Highlife (TMVR) continues and the management does not expect to accelerate patient enrollment until 20-30 patients have been enrolled in China. In overseas markets, Peijia expects GeminiOne and MonarQ (TTVR) to receive EFS in the US by YE24 and 3Q/4Q24, respectively.

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 from GPO or inclusion of reimbursement scope.

Valuation

We appreciate Peijia's comprehensive pipeline layout in transcatheter heart valve systems including TaurusNXT, TaurusTrio, HighLife, GeminiOne, MonarQ, etc.

However, we believe that the implementation of DRGS 2.0 and the rebound of the industry rectification activities continue to weigh on the growth of TAVR industry. And the market still needs time to rebuild its confidence in the commercialisation of transcatheter valve products. Year 2024 and Year 2025 are the transitional years for Peijia with steady commercialisation before the launch of its new products. We cut our 2024-26E topline forecasts to reflect (i) the ex- factory price cut on Peijia's first/second generation TAVR, (ii) the potential impact from policies above, and (iii) the intensified competition from overseas players, etc. We also lowered our operating expenses estimates in 2024-26 as the company is dedicated to cost control in order to reach breakeven in 2026.

We lowered our terminal growth from 3% to 2% to reflect slower growth of the industry due to potential centralised procurement and continued stiff national insurance fund budget control. We revised down our 12-month TP to HK$4.2 (WACC: 11.1%, terminal growth: 2.0%). Maintain BUY rating.