Lifetech announced that Medtronic has exercised the first tranche CB atthe conversion price of HK$0.475 to become the single largest shareholderwith 25% stake as compared to its previous 19%.
We see the conversion of CB as a positive sign, indicative of Medtronic’sconfidence in Lifetech’s R&D, especially in LAAC device and potentialmarket gain of Lifetech in China’s pacemaker market.
Maintain BUY with TP revised up to HK$2.15 based on 40x FY17E PE fromprevious 35x FY17E PE, which we believe is justified by 48% 3 years EPSCAGR and potential market share gain of Lifetech’s own brandedpacemaker from FY18E onwards which we have not yet taken into accountin our estimate due to timing uncertainty of product launch.
Medtronic becomes the single largest shareholder after CB conversion.Lifetech announced that Medtronic has exercised the first tranche CB at the priceof HK$0.475, the principal amount is HK$152mn with 320mn conversion shareson 22 Dec 2016. After the conversion, Medtronic will become the single largestshareholder with 25% stake from previous 19%, followed by Mr. Xie, Chairmanand CEO of Lifetech with 18.1% stake.
We fine-tuned our FY16/17E earnings estimate by 3%/0.7% to RMB107mn/RMB187mn to reflect lower finance costs and absence of non-core items fromCB annual revaluation. We believe the conversion is positive to Lifetech, as itshows Medtronic’s confidence in Lifetech’s market position in China for its LAACdevice and upcoming own-branded pacemaker product. With closer shareholderrelations, Lifetech can better leverage Medtronic’s know-how and experience incardiovascular device and pacemaker in China as well as the overseas market.
Maintain BUY with higher TP. We maintain our BUY rating on Lifetech with TPrevised up to HK$2.15 from HK$1.90, based on 40x FY17E PE from previous 35xFY17E, market share gain of Lifetech own branded pacemaker from FY18Eonwards which we have not yet taken into account in our estimate due to timinguncertainty of product launch. Once the pacemaker device obtained thecertificate from CFDA, we will revise up our earnings forecast. Current totaladdressable market (TAM) of pacemaker in China is ~RMB2.0bn, with 10%market share for Lifetech which translates to ~RMB200mn sales, representing30% upside for FY18E sales estimate and ~RMB50mn net profit, representing27% upside on our FY18E earnings estimate.
Risks: 1) ASP pressure for LAAC, 2) delay in LAmbre LAAC CFDA approval. 3).Slow ramp up of LAmbre LAAC sales 4) higher than expected operatingexpenses.