20210902-招银国际-启明医疗-B-02500.HK-Maintained_dominant_position_in_TAVR_market_5页_984kb

Venus Medtech (Hangzhou) Inc. (2500 HK) Summary

Core Content

Venus Medtech (Hangzhou) Inc. (2500 HK) is a leading company in the transcatheter valve replacement (TAVR) market, maintaining a dominant position in China. The company reported RMB239 million in revenue for the first half of 2021, representing a year-over-year increase of 134.6%, and accounted for 40% of the full-year revenue estimate. This growth was primarily driven by strong sales performance in TAVR products and the market penetration of TriGUARD3 in overseas markets.

Despite the revenue growth, Venus experienced a wider attributable net loss of RMB113 million in 1H21, compared to RMB44 million in 1H20. This was attributed to a decrease in gross margin (from 84% to 79%) and increased R&D spending (from RMB39 million to RMB104 million) as well as higher other expenses (from RMB20 million to RMB81 million).

Main Points

• TAVR Market Leadership: Venus holds over 70% of the surgical implant volume market share in China for TAVR in 1H21, with over 300 hospitals penetrated by mid-2021.
• Revenue Growth: The company reported RMB239 million in 1H21 revenue, with a strong performance in TAVR products and TriGUARD3.
• Product Portfolio:
  • VenusA-Valve dominates the sales mix, accounting for 96% of FY21E revenue.
  • VenusP-Valve and TriGUARD3 are emerging products with increasing market share.
  • V8 and TAV8 are also part of the product lineup, with modest contributions.
• Strategic Expansion: Venus is diversifying into other interventional device areas, such as the RF ablation system for HCM, through potential acquisitions and joint ventures.
• Financial Performance:
  • Net profit is expected to be negative in FY21E at RMB109 million loss, but positive in FY22E (RMB2 million) and FY23E (RMB188 million).
  • Earnings per share (EPS) is projected to rise from negative RMB0.03 in FY21E to RMB0.43 in FY23E.
• Valuation: The target price (TP) was revised down from HK$78.40 to HK$71.34 using a DCF model with a WACC of 9.3% and a terminal growth rate of 4.0%.
• Share Performance: The company's shares have shown a decline in the last 12 months, with a 12-month price performance of -46.4% in absolute terms and -39.9% relative to the market.
• Shareholding Structure:
  • Management owns 25.93% of the shares.
  • Pre-IPO investors hold 48.27%.
  • H-share free float is 22.33%.
• Financial Ratios:
  • Gross margin decreased from 84% to 79% in 1H21.
  • Net margin improved from -6.93% to 12.62% in FY23E.
  • ROE increased from -13% to 4% over the same period.

Key Information

• Earnings Forecast:
  • FY21E: RMB550 million revenue, RMB109 million net loss
  • FY22E: RMB974 million revenue, RMB2 million net profit
  • FY23E: RMB1,487 million revenue, RMB188 million net profit
• DCF Valuation:
  • The enterprise value is estimated at HK$31,462 million.
  • The value per share is HK$71.34.
• Operating Metrics:
  • The company expects to achieve 4,200 TAVR sales volume in 2021.
  • The average selling price (ASP) remained stable at RMB125,000 per unit.
• Future Products:
  • Leafex (aortic valve repair device) and Vitae (preloaded dry valve TAVR product) are expected to enter FIM in 2H21E.
• Strategic Initiatives:
  • Potential acquisition of Nuocheng Medical's Liwen RF ablation system.
  • Joint venture with Healium Medical for RDN innovative system.
  • Global principal investigator (PI) involvement from Professor Martin B. Leon's team.

Analyst Recommendation

• Rating: BUY (Maintain)
• Target Price: HK$71.34
• Price Performance:
  • Current price: HK$38.55
  • Up/Downside: +85.06% from current price to target price

Financial Statements Summary

• Income Statement:
  • Revenue increased significantly in 1H21 and is projected to grow further in subsequent years.
  • Net profit is expected to turn positive in FY22E and FY23E.
• Cash Flow:
  • Net cash from operating activities was negative in FY19A but improved in FY21E.
  • The company has shown strong cash generation in recent years, with positive net cash flows expected in future years.
• Balance Sheet:
  • Total net assets are projected to grow from RMB3,046 million in FY19A to RMB5,136 million in FY23E.
  • Shareholders' equity is expected to increase from RMB3,037 million to RMB5,095 million over the forecast period.

Key Ratios

• Gross Margin: Declined from 84% to 79% in 1H21.
• Net Margin: Improved from -6.93% to 12.62% in FY23E.
• ROE: Increased from -13% to 4% in FY23E.
• Current Ratio: Improved from 5 to 11.
• ROA: Increased from -10% to 3% in FY23E.
• BVPS: Increased from RMB9.79 to RMB11.65.

Conclusion

Venus Medtech continues to show strong growth in the TAVR market and is expanding its product portfolio into other interventional device areas. Despite a net loss in the first half of 2021, the company is expected to turn profitable in FY22E and FY23E. The revised target price reflects the company's potential for future growth and improved financial performance. The analyst maintains a BUY recommendation, indicating confidence in the company's long-term prospects.