1H17 results driven by congenital heart disease occluders
LifeTech reported 1H17 sales and net profit of RMB176mn (+12.6%YoY) and RMB84mn (+62.3% YoY), representing 38% and 54% ofour FY17E sales and net profit estimates, respectively. Sales growthin 1H17 was mainly driven by congenital heart occluders asHeartR/Cera/CeraFlex grew 20%/85%/25%, with a combined salesof RMB50mn (+36% YoY). LAmbre LAA occluders, which obtainedCE mark in Jun 2016 and commenced sales in Europe in Sep 2016,generated implantation volume and sales of c.180 units andRMB2.9mn in 1H17, respectively (vs. c.200 units and RMB3.2mn in2H16). Sales of stent graft grew 13% YoY to RMB69mn, whereasvena cava filters dropped by 13% YoY to RMB40mn due toincreased competitions from both imported and domestic products(Shandong Visee launched its vena cava filters product in Nov 2016,being the 2nd domestic brand in this space after LifeTech). Grossprofit margin improved by 0.9ppt YoY (or 2.5ppt HoH), due to highercontribution from Cera vs. HeartR which suffers strong pricingpressure from provincial tenders. Excluding non-recurring consultingincome of US$4mn (RMB27mn), operating profit was up 9.3% YoYto RMB63mn.
Pipeline updates
In Jun 2017, LAmbre LAA (left atrial appendage) occluder obtainedCFDA approval and the company guides over RMB10m sales inChina in 2H17. Moreover, the four models of implantable cardiacpacing lead that will be used with HeartTone pacemaker alsoobtained registration certificate in Jun 2017 in China. The animalstudy of HeartTone pacemaker was completed and the registrationapplication was submitted to CFDA. The company expects itspacemaker to launch in 1H18 if no clinical study is required or in2019 if it needs to go through clinical study with a half-year follow-upstudy (no. of case required = 80). In addition, the company’s iliacbifurcation stent graft system, currently in clinical trial in China,obtained “green channel” status from CFDA in Aug 2017.
Downgrade to Neutral, longer ramp-up time for LAA occluders
We adjust sales estimates by -12%/-17%/-13% in FY17/18/19E,mainly due to longer ramp-up time for LAA occluders and lowersales in peripheral vascular disease business due to morecompetitions. FY17E earnings is revised up by 8%, due tonon-recurring consulting income of US$8mn, whereas FY18/19Eearnings are adjusted by -20%/-17%. Our DCF-based target price isrevised down from HK$2.31 to HK$1.86, implying FY18/19E P/E of38x/30x. We could turn more positive if i) LAA occluder ramp up at ahigher than expected pace and ii) faster than expected timeline forapproval and commercialisation of HeartTone pacemaker.