Venue Medtech’s FY19 results were largely in line with our and market estimates. We expect moderate impact of COVID-19 on the Company and expect it to resume rapid growth from 2Q20E. We believe China TAVR is in its infancy with 65% CAGR in 2018-25E, mainly driven by 1) increasing number of hospitals and physicians eligible for TAVR procedures and 2) improving penetration and indication expansion. Venus Medtech provides comprehensive valve solutions and it is the dominator with the largest TAVR market share and the most KOL resources in China. We believe Venus Medtech will continue to occupy over 50% China TAVR market share in the next three years. We trimmed FY20/21E revenue forecasts by 5.3%/ 5.7% to reflect the impact from COVID-19 outbreak and lowered DCF-based TP HK$52.0. Maintain BUY.
- FY19 results largely inline. Venus Medtech reported FY19 revenue of RMB233mn, 2.6% above our estimate. VenusA Valve contributed 99.5% of the total revenue and the remaining income was from TAV8. We believe VenusA Valve occupied majority China TAVR market share in FY19. Net loss was RMB381mn, 11.5% higher than our estimate of RMB341mn. Due to the consolidation of Keystone, R&D expense rose 91% YoY to RMB201m in FY19. Besides, the Company booked RMB121m share awards and RMB25mn listing expenses in FY19.
- Near-term impact from COVID-19 outbreak. Due to the COVID-19 outbreak, there were delays in production and suspension of marketing activities. TAVR surgeries was suspended during Feb due to the disease outbreak. We expect sales to gradually recover from March. The Company voluntarily withdrew the application for VenusA-Plus in Feb 2020 due to 1) the application was expected to expire three months after the submission of supplementary information, and 2) the outbreak of COVID-19 and the quarantine measures affected the review process by the NMPA. The Company plans to re-submit the application to the NMPA after the outbreak is over.
- Lowered FY20/21E revenue forecasts by 5.3%/ 5.7%. Given the impact from COVID-19 outbreak and the delay of VenusA-Plus approval, we trimmed VenusA-Valuve sales unit forecasts in FY20E/21E from 2,700/ 6,000 to 2,500/ 5,500. We lowered FY20/21E revenue forecasts by 5.3%/ 5.7%. We raised other expenses from RMB10mn to RMB45mn in FY20E, where the majority cost was associated with charitable donations. We lowered our FY20/21E net profit forecasts from RMB46mn/ RMB316mn to RMB16mn/ RMB277mn.
- Maintain BUY. We remain long-term positive on the Company given its leading position in China TAVR market. We expect total revenue to grow 65%/ 129% YoY in FY20E/21E and estimate VenusA-Valve sales unit to be 2,500/ 5,500 in FY20E/21E. We trimmed DCF-based TP from HK$54.9 to HK$52.0 to reflect impact from COVID-19 (WACC:10.6%, terminal growth rate: 4.0%).
