Venus reported 1H21 revenue of Rmb239m (+134% YoY) and net losses of Rmb113m (vs losses of Rmb44m in 1H20). The topline is in line with our estimate while the bottom-line is slightly lower than our expectation due to the higher-than-expected R&D expenses. Thus, we lower our diluted EPS forecasts from -Rmb0.08 to -Rmb0.55 in 21E, from Rmb0.19 to Rmb0.07 in 22E and from Rmb0.70 to Rmb0.45 in 23E (+515% YoY). Considering recent weak market sentiment, we lower our target price from HK$79.0 to HK$55.0. With 43% upside, we maintain our BUY rating.
Growth momentum of TAVR products. Sales of VenusA-Valve and VenusA-Plus grew 131% YoY to Rmb235m, resenting 98% of its total revenue in 1H21. With the number of hospital coverage rising from 249 in end-2020 to over 300 in mid-2021, the number of TAVR procedures increased 169% YoY to 1,900 in 1H21, of which VenusA-Plus takes up c.20%. Given the rising pentation rate of TAVR procedures in China, Venus expects to further increase its hospital coverage to c.350 by 2021E and its total sales volume of VenusA-Valve and VenusA-Plus to reach over 4,000 in 2021E.
Comprehensive product portfolio. Venus has launched two TAVR products, including VenusA-Valve (unretrievable) and VenusA-Plus (retrievable). The company is preparing to register for VenusA-Pro, with an upgraded delivery catheter system compared to VenusA-Plus. The company is also developing third-generation TAVR products like Venus PowerX (self-expanding frame) and Venus Vitae (balloon-expanding frame), which employ Endura dry tissue technology with improved durability and anti-calcification properties. Venus Vitae and Venus PowerX are expected to enter first-in-human trial in 2H21E and 1H22E, respectively. Moreover, Venus is also developing a surgical valve with dry tissue technology. In addition, Venus is also preparing for FIM for Leaflex (aortic valve repair product) and Limbus (TMVR product) respectively. Meanwhile, VenusP-Valve (TPVR product), used for the treatment of patients with pulmonary regurgitation, is currently waiting for approval of CE Marking. As it has finished on-site inspection, we expect VenusP-Valve to obtain approval in 2H21E.
Business expansion. Venus is building an integrated structural heart diseases platform by equity investment and cooperation. In May 2021, the company announced investment in ValgenMed, who is specialized in transcardial interventional treatment for mitral and tricuspid regurgitation. The company also stepped into other fields, such as hypertension and hypertrophic cardiomyopathy (HCM). In June 2021, Venus announced to establish a JV with Healium to introduce its renal artery denervation (RDN) innovative system. In August 2021, the company planned to acquire the shares of Nuocheng Medical, to obtain its Liwen RF ablation system. We believe the extensive expansion would bring synergistic effect on Venus’s portfolio in structural heart diseases.
Financial highlights. The company’s blended gross margin declined 4.77ppts YoY to 78.6% in 1H21, mainly due to the investment in FEops HEARTguide system. Given rapid sales ramp-up, its selling expense-to-revenue ratio decreased 4.87ppts to 41.4% in 1H21. In addition, its R&D expenses increased 54.3% YoY to Rmb104m in 1H21, with R&D expense ratio of 43.6% (vs 66.2% in 1H20).
Maintain BUY. Considering slightly lower than expected bottom-line, we lower our diluted EPS forecasts from -Rmb0.08 to -Rmb0.55 in 21E, from Rmb0.19 to Rmb0.07 in 22E and from Rmb0.70 to Rmb0.45 in 23E (+515% YoY). Considering recent weak market sentiment, we lower our target price from HK$79.0 to HK$55.0. With 43% upside, we maintain our BUY rating.