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Equity Market Summary: MicroPort (853 HK)

Core Content Overview

This report provides an analysis of MicroPort's performance in the equity market as of July 13, 2018, with a focus on its financial results, product developments, and market positioning. The report also outlines the company's strengths, weaknesses, opportunities, and threats, along with valuation metrics and analyst certification details.

Market Performance

• Hong Kong Index (HSI): Rose by 0.60%.
• Hang Seng China Enterprises Index (HSCEI): Increased by 0.89%.
• Turnover: Declined by 16% compared to the 30-day average.
• SSE Composite: Up 2.16%.
• SZSE Component: Up 2.77%.

Sector and Stock Tracking

Key stocks:

• IMAX CHINA (1970): 1Q change of 8.8%
• ALI HEALTH (241): 1Q change of 7.6%
• CHINA LESSO (2128): 1Q change of 7.7%
• DALI FOODS (3799): 1Q change of 8.1%
• SUNNY OPTICAL (2382): 1Q change of 6.7%
• VITASOY INT'L (345): 1Q change of 53%

MicroPort Overview

MicroPort is a leading medical device company in China, specializing in cardiovascular products, particularly stents. The company has developed several generations of drug-eluting stents (DES), with Firebird and Firehawk being its core products.

• Firebird: First domestic drug-eluting stent in China, launched in 2004.
• Firebird2: Launched in 2009, improved in design and material.
• Firehawk: Launched in 2014, the world's first target-eluting stent (TES), with targeted drug delivery, allowing for lower dosages and improved efficacy and safety.

Financial Performance

FY17 Results

• Revenue Growth: 14.7% YoY, driven by the cardiovascular segment.
• Cardiovascular Revenue: 21.5% growth.
• Net Profit Growth: 33.1% YoY, due to improved gross margins and operating performance.
• Firehawk Sales: Grew by 59% (61% domestic, 53% overseas).
• Firebird Sales: Stable at 9% growth.
• Orthopedics Segment: Achieved breakeven in 4Q 2017, with losses narrowing from $10.7m to $8.7m.
• Acquisition of LivaNova's CRM Business: Completed in 2018, valued at $190m.

Revenue Mix by Segment (2015–2016)

Revenue Mix by Geography

• PRC: 3% in 2016
• North America: 18%
• Europe: 3%
• Asia (ex-PRC): 10%
• South America: 1%
• Others: 3%

Valuation Metrics

• P/E (Forward FY18): 88.2x
• P/B: 4.2x
• Dividend Yield: 0.3%

SWOT Analysis

Strengths

• Market leader in China for stent implantation.
• High-quality core stent product comparable to US and EU competitors.

Weaknesses

• Profitability heavily depends on the cardiovascular segment.
• Acquired orthopedics business remains loss-making.

Opportunities

• Expansion into new segments such as neurovascular and electrophysiology.
• Return of orthopedics business to profitability.

Threats

• Increased competition could lead to decline in average selling prices (ASP).

Key Risks

• Heavy reliance on one core product line.
• Uncertainty over the orthopedics segment's ability to consistently generate profit despite contributing 50% of sales.
• Distribution costs remain high, even though they have decreased from 38% to 31% of revenue since 2014.

Analyst's View

• MicroPort's proprietary target-eluting stent (Firehawk) has helped maintain its leadership position in the domestic market.
• The cardiovascular segment continues to perform well, with Firehawk expanding into new markets annually.
• However, the company's valuation is considered expensive, and the uncertain growth of the bottom line due to the orthopedics drag raises concerns.
• The company has outperformed the HSI year-to-date (YTD).

Disclaimer

This report is provided by Orient Securities (Hong Kong) Limited, which may have a conflict of interest with the companies discussed. The report is for informational purposes only and does not constitute investment advice. Investors are advised to consider this report as one of many factors in their decision-making process. The report is not intended for distribution in jurisdictions where it may be illegal. No liability is accepted for any loss arising from reliance on the report.