20230322-招银国际-康德莱医械-01501.HK-Rich_portfolios_guarantee_recovery_in_2023E_6页_1mb

Kindly Medical (1501 HK) Summary

Core Content

Kindly Medical (1501 HK) is a healthcare company with a focus on interventional medical devices. The document outlines its financial performance, growth expectations, and valuation analysis for the period from FY2020 to FY2025E. It highlights the company's recovery from the impacts of the pandemic and its strong performance in both domestic and overseas markets.

Main Points

Financial Performance (FY22)

• Revenue: RMB585.9 million, up 26.1% YoY, but 4.6% below consensus estimate.
• Gross Profit Margin (GPM): Declined by 2.5 ppts to 56.8%, due to the increasing share of agent business.
• Interventional Medical Devices GPM: Improved by 2.9 ppts to 65.4%.
• Employee Growth: Expanded to 1,632 employees (from 1,189 in 2021), leading to a 42% YoY increase in employee costs.
• Net Profit: RMB134 million, a 4.7% YoY decline, missing consensus by 24%.

Revenue and Profit Forecasts (2023E–2025E)

• Revenue Growth: Expected to grow by 45% YoY in 2023E, reaching RMB850 million.
• Net Profit Growth: Projected to increase to RMB154 million in 2023E, with a 20.5% YoY growth.
• EPS (Reported): Expected to be RMB0.95 in 2023E, up from RMB0.79 in 2022A.
• Profit Margins:
  • GPM: Expected to be 55.00% in 2023E.
  • Operating Margin: Expected to be 19.46% in 2023E.
  • Net Margin: Expected to be 18.35% in 2023E.

Domestic Business Recovery

• PCI Supporting Devices: Kindly Medical has a comprehensive product portfolio covering most of the PCI supporting devices.
• Hospital Coverage: By the end of 2022, the company had covered 2,317 hospitals, including 908 Tier III hospitals.
• Pent-up Demand: The company expects rapid recovery in 2023E as pent-up surgery demand from 4Q22 is released.
• PCI Surgeries Growth: Anticipated to increase by 25% YoY in 2023E to 1.5 million, driving growth in Kindly Medical’s PCI supporting devices.

Overseas Market Growth

• Overseas Customers: Expanded to 207 customers (from 184 in 2021), covering over 58 countries and regions.
• Overseas Revenue: Increased by 44.3% YoY in 2022 to RMB148.5 million.
• Growth Expectation: Overseas revenue is projected to grow by 50% YoY in 2023E, driven by cost advantages and brand awareness.

Product Pipeline

• Interventional Devices: The company is expanding into neurological, peripheral, and orthopaedic interventional devices.
• R&D Products: Expected to have approximately 14 products approved as Class III medical devices in 2023E, indicating a robust R&D pipeline.

Key Information

Analyst Recommendation

• Rating: Maintain BUY.
• Target Price: HK$31.41, based on a 9-year DCF model.
• WACC: 8.57%.
• Terminal Growth Rate: 2.5%.

Valuation Metrics

• P/E Ratio: Expected to drop from 28.9 in 2022A to 24.0 in 2023E.
• P/B Ratio: Expected to decrease from 2.4 in 2022A to 1.9 in 2025E.
• Dividend Yield: Projected to rise from 0.8% in 2022A to 1.7% in 2025E.

Shareholding and Performance

• Market Cap: HK$4,508 million.
• Share Performance:
  • 1-month: -1.6%.
  • 3-months: -5.8%.
  • 6-months: 0.6%.
• Shareholding Structure:
  • Kindly Holding: 25.5%.
  • Huaige Health Investment: 9.1%.

Sensitivity Analysis

• The DCF valuation is sensitive to changes in WACC and terminal growth rate, with the target price decreasing as the terminal growth rate decreases or WACC increases.

Conclusion

Kindly Medical is expected to experience significant recovery in 2023E, driven by the resumption of normal surgical activities in China and continued strong growth in the overseas market. The company has a diverse product portfolio and a robust R&D pipeline, supporting its long-term growth. Despite a drop in net profit in 2022 due to pandemic-related disruptions, the company is projected to achieve solid growth in 2023E, with a 45% YoY revenue increase and a revised target price of HK$31.41. The company is currently undervalued compared to its projected earnings and is expected to outperform the market.