FY16 sales was up 13% yoy to RMB353mn, beating our estimate by 9%, adj.
net profit was up 32% yoy to RMB105mn, in line with our estimate.
Revise down FY17/18E earnings estimate by 18.9%/13.4% toRMB151mn/224mn to reflect higher selling and marketing expenses.
Reiterate BUY with TP revised up to HK$2.58 based on rolled forward 40xFY18E PE from previous 40x FY17E PE, justified by 30% 3-year EPS CAGR.
FY16 net profit in line: Lifetech released its FY16 results with sales up 13% yoyto RMB353mn, beating our estimate by 8.6%. Structural heart diseases (SHD)revenue was down 15% yoy to RMB121.3mn as CeraFlex has terminateddistribution agreement with Medtronic and is picking up sales with direct selling.
Peripheral vascular diseases (PVD) revenue was up 35% yoy to RMB228mn,among which stent graft revenue is experiencing robust 46% yoy growth toRMB126mn. New product LAAC which kicked off sales in 4Q16 recorded sales ofRMB3.2mn, in line with our estimate of RMB3.6mn. GPM was down 2.7ppts yoy,0.5ppt lower than our estimate. Adj. net profit (excluding CB impact, disposal ofsubsidiary, and share based payments) was up 32.2% yoy to RMB105mn, in linewith our estimate.
We revised down our FY17/18E earnings estimate by 18.9%/13.4% toRMB151mn/ RMB224mn. LAAC achieved initial RMB3.2mn sales with ~180units sold in FY16, We revise down LAAC revenue in FY17/18E fromRMB99mn/RMB200mn to RMB60mn/RMB132mn to reflect slower than expectedsales pick up in Europe, however LAAC is in the process of CFDA registrationand is expected to obtain CFDA by end of 2017E, as LAAC enjoys higher ASP ofRMB25k and larger addressable market in China, we believe it will be the nextgrowth driver. We also revise up SHD and PVD revenue to reflect recovery ofSHD business and continuous robust growth of PVD business. As a result, werevise up FY17/18E revenue by 3.1%/1.3% to RMB483mn/RMB633mn. Werevise down FY17/18E adj. net profit by 19%/13% to RMB151mn/RMB224mn toreflect higher selling and marketing expenses in new products promotion.
Reiterate BUY with TP HK$2.58. We reiterate our BUY rating on Lifetech withTP revised up to HK$2.58 from HK$2.15, based on rolled forward 40x FY18E PEfrom previous 40x FY17E, which is justified by (1) its 30% 3-year EPS CAGR (2)strong back up from Medtronic which has exercised its CB in Dec 2016, andcurrently is the single largest shareholder of Lifetech, we believe Lifetech canleverage Medtronic’s global leading medical device position and resource tobetter develop its products and (3) Lifetech’s pacemaker is expected to belaunched in FY18E which we have not taken into account due to time uncertainty.
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.