The 2022 results are in line with our expectations

The company announced its 2022 results: revenue of 334 million yuan, an increase of 88% over the previous year; adjusted net loss of 25.88 million yuan, and the loss narrowed by 74.87 million yuan year on year (adjusted net loss of 101 million yuan in 2021). The performance was in line with our expectations.

Development trends

Commercialization continues to materialize, with the company leading a 45-55% increase on the revenue side in 2023. In 2022, the company's revenue reached 334 million yuan, including 233 million yuan for neurological intervention, an increase of 108% over the previous year, mainly due to rapid release of thrombolic stents, support catheters, intracranial balloons, and spring rings. Peripheral intervention was 101 million yuan, an increase of 53% over the previous year, mainly the increase in knee medicine balloons. By the end of 2022, the company's products covered 3,300 hospitals across the country and had 133 sales staff. Management indicated a 45-55% increase on the revenue side in 2023, corresponding to $48-5.2 billion. Management also expects the sales expenses rate to be controlled at 32-34%, R&D expenses will be around 250 million yuan, and the management expenses rate will remain stable. Management expects break-even in 2024. Furthermore, the company hired a new vice president of marketing for the EMEA region, which led to a year-on-year increase in overseas revenue in 2023.

Actively embrace the collection policy. In 2022, the intracranial spring ring went through multiple rounds of collection, and the company's products won first place in the Jiangsu, Fujian, Jilin 21 Provincial League, and Anhui. Achieve rapid hospitalization and increase market share. Furthermore, the company also has confidence in the off-standard market, believing that the product price reduction will not affect its competitiveness in the off-standard market. In March 2023, Henan organized intra-provincial neurological and peripheral interventional collection. The company's thrombolic stents, intracranial balloons, support catheters, and knee pills all won the bid.

The innovation pipeline is in an intensive harvest period. In 2022, the company launched five new products, including carotid artery balloons, intravenous radiofrequency closed catheters, and recyclable venous filters, accounting for 1.9% of revenue in 2022.

In 2023-25, the company expects 17, 13, and 7 new products to be approved respectively, including suction catheters, peripheral venous stents, closed-net stents, intracranial medicine balls, TIPS stents, lower knee pills, and thoracic laminal stents, which will be certified one after another starting this year. We believe that the company's layout of nerves and peripheral blood vessels has entered the first tier in China. In the future, it can continue to implement the domestic substitution logic through centralized procurement policies and its own rich product portfolio.

Profit forecasting and valuation

We kept our 2023 loss forecast unchanged and introduced a net profit forecast of $19 million for 2024. We maintain our outperforming industry ratings and target price of HK$15.14 based on the DCF model (WACC = 9.5%, sustainable growth rate = 1%) unchanged, with 30% room for an increase from the current stock price.

risks

The reduction in procurement prices exceeded expectations, the competitive pattern worsened, R&D failed, and internationalization fell short of expectations.