China coronary intervention device and PCI supporting device market to grow at 12.9% and 13.3% CAGR in 2018-23E, respectively, driven by rising incidence of acute myocardial infarction (AMI) and increasing PCI penetration. According to Frost & Sullivan (F&S), the number of China’s PCI procedures reached 0.9mn in 2018 and will grow at a 14% CAGR in 2018-23E. F&S estimates that international brands dominated China’s coronary intervention device/PCI supporting device market with 89%/87% market share, respectively, in 2018. We expect domestic brands to gain market share thanks to competitive pricing and improving technology. Kindly Medical ranked second in China coronary interventional device market with 1.8% market share and first in China PCI supporting device market with 3.1% market share in 2018 among domestic players.
Establishing an integrated cardio-cerebrovascular device platform. Kindly Medical’s product portfolio covers the supporting devices for the entire procedure of a PCI surgery, such as inflation device, introducer set, angiography guide wire, pressure bandage, etc. It recorded 38% sales CAGR and 31% net profit CAGR in 2016-18. Kindly Medical has expanded its product portfolio into the interventional devices of cardiovascular, neurovascular, digestive tract and gynaecological diseases and had 16 products under development as at 16 Sep 2019. Key blockbusters in pipeline include embolectomy catheter, biodegradable sinus/ biliary stents and aortic intervention valves, which all enjoy moderate competition and we expect to launch in 2022-24E.
Revenue/ Net profit expected to show 41.3%/ 49.5% CAGR in FY18-21E. We expect total revenue to grow 48%/ 42%/ 45% YoY to RMB289mn/ 418mn/ 573mn in FY19/20/21E, respectively, mainly driven by strong existing products and new product launches. We expect net profit to grow 61%/ 56%/ 33% YoY to RMB94mn/ 146mn/ 194mn in FY19/20/21E, respectively, and attributable net profit margin will improve to 32%/ 35%/ 34% in FY19/20/21E, respectively, due to the upcoming launches of high-margin products and additional interest income.
Initiate BUY with TP of HK$39.5. Given Kindly Medical’s strong cash flow and rich pipeline products, we use DCF to do derive our TP of HK$39.5 based on 8-year DCF model (WACC: 10.42%, terminal growth rate: 3%).
