Revenue was RMB224.9m, up 89% YoY and in line with operation updates released in July with better-than-expected growth in neurointerventional business. Loss widened from RMB92m in 1H22 to RMB212m in 1H23, partially due to its one-off BD payments. Management expects Achieva to achieve breakeven in 2024, and the company to break even in 2025. Peijia kept its guidance of grasping 20-25% TAVR market shares in 2023 unchanged. Although Peijia adheres to its broad- coverage strategy, we see Peijia improving hospital revenue mix, with Top hospitals accounting for 20-25% of its revenue, alleviating potential impacts from anti-graft activities. Post result, we revised our TP to HK$12.6 （WACC of 10.8% and terminal growth rate of 3.0% unchanged）。
　　Key Factors for Rating
　　1H23 results in in line：Revenue was RMB224.9m, up 89% YoY and in line with previous operation updates released in July. Revenue from neurointerventional products and TAVR products was RMB117.1m （+76% YoY） and RMB107.7m （+107% YoY）； the growth in neurointerventional products was higher than our expectation while that in TAVR business was in line. Loss widened from RMB92m in 1H22 to RMB212m 1H23, mainly attributed to （i） higher R&D expenses （RMB171m vs. RMB83m in 1H22）， and （ii） higher selling expenses （RMB172m vs RMB93m in 1H22）， offset by improved gross margin （77% vs. 70% in 1H22）。 Surging R&D was mainly due to one-off BD payments in TAVR business （RMB87.9m vs. RMB12.3m in 1H22）。 According to management, the remaining potential milestone payment was less than RMB300m. As of 1H23, Peijia has RMB1.16bn cash.
　　Updates on commercialisation of TAVR: Peijia completed 1,250 implants in 1H23. As of 1H23, Peijia continued its broad-coverage strategy, with its TAVR admitted to 14/21/78/318 Top/KA/STAR/new hospitals respectively, summing up to total 429 admitted hospitals. Of the 1,200 TAVR implantations Peijia conducted, Top/KA/STAR/new hospitals accounted for 20-25%/10-15%/30- 35%/30%-35% of its total implants （vs. 10%/15-20%/20-25%/45%-50% respectively in 2022）， per management. TAVR’s selling expenses increased by 88% YoY to RMB127m in 1H23, accounting for 118% of TAVR revenue （vs. 161% in 2022）。 According to management, the implantation volume dropped c.10% in August compared with monthly implants in June and July, mainly attributed to seasonality rather than impacts from anti-corruption campaign.
　　Valuation
Post results, we slightly lifted 2023-25E revenue by 4%-5%. We also increased our gross margin forecasts based on significantly improved GPM in 1H23 thanks to its improved operational efficiency and yield rate, while we expect GPM to decrease in 2024 given new capacity to be put into operation by YE23. We also increased short-term and long-term selling expenses ratio. Updated CNY/HKD FX rate to 1.12, and derived 12-month TP of HK$12.6. Maintain BUY rating.
　　Strong growth seen in neurointerventional business: neurointerventional business recorded a YoY growth of 75.6% to RMB117.1m in 1H23, beating our estimates, with ischemic/ vascular access/ hemorrhagic products up 175%/90%/8% YoY, driven by （i） sales ramp-up of new ischemic products stent retriever and balloon dilatation catheter, and （ii） sales ramp-up of detachable coil after being included in provincial-level centralised procurement.
　　Key Risks for Rating
1） Intensified competition in valve market; 2） slower-than-expected ramp-up of　TAVR products and R&D progress; 3） GPO risk on neuro-interventional product; 4） further price cut on TAVR products.