2021 results in line with our expectations
MicroPort Scientific Corporation announced its 2021 results: Revenue rose 20% YoY to US$779mn, and attributable net loss widened 45% YoY to US$276mn due to increased R&D and G&A expenses, COVID-19 resurgence, and reduced prices for centralized procurement of coronary stents and orthopedic products. The firm’s revenue excluding the forex rate impact grew 15% YoY in 2021. Its results are in line with our expectations.
Trends to watch Cardiovascular, orthopedics, and cardiac rhythm management businesses grew solidly. 1） Cardiovascular: Coronary stent output in
2021 was around 1.22mn, including 200,000 in overseas markets. The firm ranked No.2 by output globally. Revenue from coronary balloons and accessories increased 47.5% YoY to US$24.5mn in 2021. The firm added digital subtraction angiography （DAS） and optical coherence tomography （OCT） technologies into its product portfolio. It also completed the patient enrollment for its Firesorb stent projects in 2021. The firm expects revenue from its cardiovascular business to increase 13-15% YoY and expects the overseas business to contribute 20% of revenue in this segment in 2022. 2） Orthopedics: Overseas revenue （excluding the forex rate impact） in this segment grew 11.8% YoY to US$193mn. Its joint and spine products will likely penetrate into more hospitals and realize sales growth in China via centralized procurement, in our view. The firm estimates that its total revenue from the orthopedics business will grow 14-16% YoY in 2022, with domestic and overseas revenue up 50% and 8-10% YoY. 3） Cardiac rhythm management: Revenue （excluding the forex rate impact） in this segment rose 18.8% YoY in 2021. According to the firm, its total revenue from the cardiac rhythm management business will likely grow 10% YoY in 2022, with domestic and overseas revenue up 25-30% and 6-9% YoY. We expect the firm to achieve break-even for its orthopedics and cardiac rhythm management businesses in 4Q23 and 2024.
Sales in several business segments ramped up rapidly. 1） Excluding the forex rate impact, revenue from aortic and peripheral vascular intervention, neurovascular intervention, and aortic valve businesses increased 45.6%, 72.5%, and 93.2% YoY in 2021. We expect its revenue in these three segments to grow over 35-40%, 50%, and 80% YoY in 2022.
The firm is ranked No.1 or No.2 in these three markets. 2） Surgical robots: Toumai Endoscopic Surgery Robot has been approved for marketing.
The firm also submitted application to National Medical Products Administration and US Food and Drug Administration for Honghu Orthopedic Surgery Robot. We expect its revenue from surgical robots to grow in 2023.
Increasing R&D investment and enhancing global business expansion. Management guides that revenue should grow 20-25% YoY and GM should stand at 63-64% in 2022. Management estimates selling expense ratio, G&A expense ratio, and R&D expense ratio at around 38%, 28% （vs. 32% in 2021）， and 37-39% in 2022. We attribute the higher selling expense ratio estimate to the possible increase in overseas investment. In addition, the firm will likely increase investment to promote clinical application of surgery robots, add new CRM products for the treatment and prevention of heart failure, upgrade TAVR aortic valve product and mitral and tricuspid valve products, as well as the clinical study on MicroPort Firehawk rapamycin target eluting stent in the US in 2022.
The firm estimates that the clinical study on Firehawk stent will cost around US$30mn and the product will likely be approved for marketing by the FDA.
MicroPort has built a business center in the US and recruited more sales staff to promote sales of high-quality products in overseas markets. We expect stronger revenue growth in 2023 and for the company to break even in 2024-2025.
Financials and valuation
Considering that the firm is increasing R&D and marketing expenses, we widen our 2022 and 2023 attributable net loss forecasts by US$131mn and US$192mn to US$284mn and US$238mn. We are upbeat on the long-term growth of its businesses. As a result, we maintain an OUTPERFORM rating and our DCF-based target price of HK$24.63, offering 38.5% upside.
Risks
Price reductions; disappointing R&D; fiercer competition.