Key points of investment:

A pioneer in meningeal repair consumables, neurosurgery collaboration+ overseas to steadily advance growth space The company was founded in 2008. It is the only company in the field of neurosurgery in China that also has implanted medical device products such as artificial hard brain (spine) membrane patches, craniomaxillofacial repair systems, absorbable regenerated cellulose, and dura mater medical gel. The product synergy effect is obvious. In 2023, revenue exceeded 200 million yuan, and net profit to mother was 0.3 million yuan, an increase of 17.86% over the previous year. Among them, artificial hard brain (spine) membrane patches, craniomaxillofacial repair and fixation systems are the company's main revenue sources, accounting for 60.47% and 26.41% of revenue respectively; new products such as absorbable regenerated cellulose oxide and dural medical glue have broken the import monopoly and are steadily advancing overseas, opening up a second growth curve.

As the impact of procurement in various product fields becomes clear one after another, the trend of volume exchange is expected to drive the company's performance into a new stage of growth.

In the 6 billion dollar market for durocephalic (spinal) membrane patches, the company's product advantages are obvious. The number of craniotomy surgeries has reached 770,000 units in 2020. Artificial meningia is an essential consumable for craniotomy, and the market size in 2020 was close to 6 billion. The company's meningeal products were listed with CE certification in 2011. They are the world's first bio3D printed absorbable brain (spine) membrane and the only meningeal product in the “Innovative Medical Device Product Catalogue (2018)”.

According to the Forward-looking Industry Research Institute, the localization rate of artificial dural membranes before harvesting is as high as 90% and the concentration is high. The company is the only 3D printed synthetic material, which benefits from the absolute advantages of the product and excellent collection performance, driving the company to quickly increase its market share, and subsequent acceleration of volume can be expected.

The trend of replacing titanium in PEEK material was determined. The company's second-most domestically produced PEEK material for craniomaxillofacial repair has become the preferred material to replace titanium materials due to its irradiation resistance, etc., but domestic PEEK materials have a low permeability rate (less than 10%), and there is plenty of room for penetration rate improvement. The company's PEEK craniomaxillofacial defect repair product was launched in 2016 for the second time in China, with excellent performance. At the same time, the company is expanding the dental circuit based on the advantages of existing technology platforms. Ongoing projects include PEEK-HA dental implants to further enrich the product layout. Due to the strong scarcity of products, the company's craniomaxillofacial repair and fixation system business earned 69.67 million yuan in 23 years, an increase of 61.13% over the previous year; it was successfully selected in the Henan Interprovincial Alliance collection in '23, and the winning bid price was significantly higher than that of metal materials, and it has higher pricing power. Relying on a comprehensive layout in the field of skull repair, the company is expected to expand its product sales scale and increase its product market share in the future.

Profit forecasting and investment advice

We expect the company's revenue for 2024-2026 to be 2.9/39/ 51 million yuan respectively, up 26%/34%/32% year on year, and net profit to mother of 0.55/ 0.95/135 million yuan, respectively, up 35%/73%/42% year on year. Using a comparable company valuation method, we selected Bairen Medical, Zhenghai Biotech, and Guanhao Biotech, which have artificial hard brain (spine) membrane patch businesses, and Kangtuo Medical, which has PEEK craniomaxillofacial repair services, as comparable companies, and calculated that the average PE ratio after 24 years of adjustment was 40.6 times. We believe that as the company builds collaborative and comprehensive solutions around the neurosurgery department, its technical advantages in core segments will gradually become prominent, and collection will accelerate the overall penetration rate of the industry and increase the company's market share, and it is expected that it will continue to establish certainty in performance growth. Considering the comprehensive layout of the company's neurosurgery product line, going overseas gives the company a higher room for growth, gives the company a certain valuation premium compared to comparable companies, and covers the “buy” rating for the first time.

Risk warning

Sales of new categories fell short of expectations, the risk of deteriorating competitive landscape, overseas certification fell short of expectations, and winning bids fell short of expectations