On 12 January, New Horizon Health released strong FY22 preliminary results, strongly beating market expectation and previous guidance.FY22 sales reached RMB751-783m, up 253%-268% YoY, with all three commercialised products, namely ColoClear, Pupu Tube and UU Tube, achieving better-than-expected sales. Mgmt. raised FY23 topline guidance to RMB1,400-1,500m, and reiterated its target to break even in 2024. Based on New Horizon’s strong FY22 preliminary results and promising outlook, we raised FY22/23/24E revenue by 34%/30%/14%, and fine-tuned FY22/23 GPM to 85%/87%, due to a higher proportion of revenue from high ex-factory price channel. As such, we raised TP to HK$ 66.0. Reiterate BUY.
　　Key Factors for Rating
　　2022 revenue strong beat. Post market on 12 January, New Horizon released a positive preliminary result alert: FY22 sales reached RMB751-783m, up 253%- 268% YoY, versus previous mgmt. guidance of RMB650m, with all three commercialised products, namely ColoClear, Pupu Tube and UU Tube, achieving better-than-expected sales. Gross margin improved to around 85% in FY22 from 73% in FY21, with increased selling volume and higher blended ASP attributable to more favourable ex-factory price channels. Product wise (taking the midpoint of guided range), ColoClear grew 272% YoY in FY22 and achieved revenue of RMB361m (vs RMB97m in FY21), with GPM of 84%; its revenue from hospitals surpassed DTC (direct-to-consumers) channel to become the largest sales contributor; Pupu Tube grew 72% YoY to revenue of RMB199m, with GPM of 82%; UU Tube reported revenue of RMB206m in its first commercialisation year, with GPM of 91%.
　　Raised FY23 guidance and reiterated target to break even in 2024.　Mgmt. raised FY23 topline guidance to RMB1,400-1,500m, with nearly 90% YoY growth rate. ColoClear to achieve RMB750m, up 90% YoY; UU Tube to log RMB400-450m, with more than 100% YoY growth; Pupu Tube to record RMB300m, up 30-40% YoY.
　　Clinical catalysts ahead: 1) CerviClear, to complete 90% clinical subjects enrolment by mid-2023, and to have some preliminary clinical data readout by end-2023; 2) LiverClear, to file registrational clinical trial around mid-2023, and to kick off the trial by end-2023, which will recruit 15,000 subjects.
　　Key to watch on FY22 annual result release (13 March): 1) ColoClear shipment volume, a leading indicator for future revenue growth; 2) ColoClear revenue from HK market; 3) update on number of provinces that ColoClear has obtained price labels; and 4) selling expense ratio and R&D expense ratio.
　　Key Risks for Rating
　　Slower-than-expected ramp-up of ColoClear; higher-than-expected market competition in colorectal cancer screening market.
　　Valuation
　　Our 12-month TP of HK$66.0 is based on a DCF valuation with WACC of 11.0% and a terminal growth rate of 4.0%.