In-line FY16 results
LifeTech reported FY16 sales of RMB353mn (+13.2% YoY), beatingour top-line expectation by 8%. Excluding one-off items (includingconsulting income, disposal gain of a subsidiary and losses relatingto convertible notes), adjusted net profit was up 14.1% YoY toRMB83mn (vs. our estimate of RMB82mn).
Stent grafts and vena cava filters continued to deliver
Stent grafts grew 45.5% YoY to RMB126mn, thanks to continuedimport substitution. According to the company, LifeTech currentlyhas 20-25% of the stent graft market in China, ranking no.1 amongdomestic companies whereas MNCs still occupy c.50% of themarket. Sales of vena cava filters was up 22.1% YoY to RMB96mn.As a result, PVD (peripheral vascular disease) business was up35.2% YoY to RMB228mn, representing 65% of total sales vs. 35%for structural heart disease (SHD) business. SHD was down 12.7%YoY to RMB124mn, due to lower sales of HeartR (-13.4% YoY) andCeraFlex (-33.5% YoY) vs. Cera (+4.9% YoY). CeraFlex had almostno sales in Europe in FY16 as the company terminated theexclusive distribution rights of Medtronic. Management expects SHDbusiness to resume growth in FY17, due to i) stronger sales inCera (to replace HeartR which suffers strong pricing pressurefrom provincial tenders and margin erosion in PRC market) andii) CereFlex sales had resumed in Europe in late 2016.
Gearing up for LAA occluder and pacemaker in China
Sales of LAmbre LAA occluders commenced in Europe in Sep 2016,with sales and no. of unit sold in FY16 amounted to RMB3.2mn and~200, respectively. The company expects to sell 800+ units of LAAoccluders in Europe and obtain CFDA approval in 2017. Moreover,the animal study for pacemaker was completed in Jan 2017,expecting a launch timeline in 1H18, given the product’s “greenchannel” status.
Model updates; Maintain Buy
We revised down sales estimates on SHD sales by 18%/17% inFY17/18E, mainly due to lower sales of LAA occluders. PVD sales inFY17/18E are adjusted upward by 13%/16%, to reflect on strongersales in stent grafts and vena cava filters. As a result, total revenueis adjusted by -1.6%/-0.1% in FY17/18E. SG&A ratio is adjusted by-1.2ppt/-1.1ppt in 17/18E to reflect lower distribution expenses.Therefore, FY17/18E earnings are adjusted by +6%/+6%. Weroll-over our DCF valuation base to FY17, and revise our TP toHK$2.32, implying a PEG of 1.0, in-line with peers’ average.Catalysts include CFDA approval for LAA occluder and developmentprogress on pacemaker. Key risks are price cuts, delay for newproduct launches.