We trimmed our FY20/21E revenue forecasts by 2.9%/2.3% to reflect COVID-19 impact on overseas business. We believe Kindly Medical will continue its import substitution in PCI supporting device market with comprehensive product portfolio. We think its 36x/28x FY20/21E P/E is not demanding given 33% CAGR in attributable net profit in FY19-22E. Maintain BUY and lowered our DCF-based TP to HK$39.3.
- FY19 earnings slightly beat. FY19 revenue/ attributable net profit grew 41.1% YoY/ 71.1% YoY to RMB286mn/ RMB100mn, which was 0.9% below / 6.3% above our forecasts, respectively. Revenue growth is consistent with our estimate, driven by rapid growth of interventional medical devices. GPM improved by 2.6ppt to 60.9% thanks to better product mix. Other income increased from RMB6mn in FY18 to RMB18m in FY19, mainly contributed by FX gains and FV change in FX contracts. Attributable NPM rose by 6.1ppt to 34.8% in FY19.
- Improvement in product mix leading to margin expansion. Revenue from interventional devices grew 45.7% YoY and accounted for 89.9% of total revenue in FY19 vs 87.1% in FY18. In addition, GPM of interventional devices improved by 2.1ppt to 65.2% in FY19 thanks to the launch of high-margin products such as Micro-catheter, PTCA balloon catheter, Guide wire and Guide catheter in FY19. Furthermore, we expect the Company to further upgrade its product mix with more high-value products getting approved. We expect Kindly Medical to have three neurovascular devices obtaining NMPA’s approvals in 2020E.
- Impact from COVID-19. Number of PCI surgeries in China shrank sharply in 1Q20 due to the virus outbreak. However, as the outbreak was curbed in China and many hospitals resumed normal operations, PCI surgery volume has gradually recovered. In addition, the virus outbreak in overseas has been worsening since early Mar, which brings uncertainties to overseas demand in coming months.
- Maintain BUY; Cut TP to HK39.3. We trimmed our FY20/21E revenue forecasts by 2.9%/ 2.3% and trimmed net profits forecasts by 6.4%/ 8%. We expect revenue to deliver 37% CAGR in FY19-22E, driven by market share gain from foreign brands and launch of new products. We cut our DCF based TP to HK$39.3 (WACC: 10.38%, terminal growth rate: 3%).
- Catalysts: 1) new product approvals; 2) earlier than expect end of the COVID-19 outbreak; Risk: larger impact from COVID-19 outbreak.
