Kindly Medical reported FY20 revenue/ attributable net profit growth of 25.1% / 20.7% YoY to RMB358mn/ RMB117mn, respectively, which miss consensus estimates due to CIVID-19 pandemic. Blended GPM improved by 4.56ppt to 65.4% driven by high-margin mask business which generated 80.8% GPM in FY20. In addition, GPM of interventional devices improved by 0.3ppt to 65.5% in FY20 thanks to higher revenue contribution of high-margin products such as Micro-catheter, PTCA balloon catheter, Guide wire and Guide catheter. Dividend payout ratio increased from 29% in FY19 to 39% in FY20. Maintain BUY and raised our DCF-based TP to HK$44.91.
- Solid earnings growth amid COVID pandemic. Revenue growth was mainly driven by RMB70mn sales of masks which was a new business started in FY20 and contributed 19.6% of FY20 revenue. Meanwhile, sales of interventional medical devices increased slightly by 3.4% YoY to RMB266mn. Due to COVID pandemic, outpatient visits and elective surgeries except COVID-19 treatment were postponed or cancelled, which affected the sales of interventional devices. We think the solid performance in FY20 was due to the Company’s expanding product portfolio and extensive distribution network. By the end of 2020, the Company had 434 China distributors covering 1,436 domestic hospitals, including 664 Tier III hospitals. The Company also had 143 overseas customers covering over 51 countries and regions.
- Rich innovative medical device pipelines. In 2020, the Company received NMPA approvals for seven medical devices, including neural micro-guidewire (神经微导丝), neural micro-catheter (神经微导管), fallopian tube catheter (输卵管导管), etc. The Company also obtained six CE approvals and two US FDA approvals. The Company’s key pipelines, such as TAVR, drug eluting balloon, embolectomy catheter, are progressed smoothly. As at end 2020, the Company had 127 granted patents, 135 patent applications and five software copyrights. R&D expense rose sharply by 109.9% YoY to RMB65mn, indicating 18.0% R&D expense ratio in FY20, vs 10.7% in FY19.
- Maintain BUY. We trimmed our FY21/22E revenue forecasts by 13.9%/ 14.9% and trimmed net profit forecasts by 19.0%/ 18.4%. We maintain positive on the Company given its rich innovative medical device pipelines. We rolled over our DCF based TP to FY21E and raised TP to HK$44.91 (WACC: 10.38%, terminal growth rate: 3.0%).
- Catalyst: new product approvals; Risk: negative impact from COVID outbreak.