Company Reports

We cut no-moat OrbusNeich's fair value estimate to HKD 6.11 per share from HKD 7.06 as we lower our operating profit margin assumptions and 2024-25 revenue growth forecasts following disappointing first-half 2024 results. While we think earnings risks are limited and expect a recovery from the decline in US and China revenue, we also cut our longer-term operating margin assumption as we were previously too optimistic that the company could keep staff costs low following the acquisition of Eucatech AG. In light of the expansion of staff and facilities, we cut our operating margin assumption to average 16.9% from 21.1% in our explicit forecast period. While we think most of the risks to OrbusNeich’s earnings are reflected and shares are presently undervalued, the lack of earnings growth may keep investors sidelined.

OrbusNeich differentiates itself as a specialist global medical device maker, producing percutaneous coronary intervention, or PCI, and percutaneous transluminal angioplasty, or PTA, devices. These are more commonly known as stents and balloons. Minimally invasive procedures such as PCIs are preferred novel treatments when treating cardiovascular diseases. Compared with traditional chest-opening procedures, OrbusNeich’s products are less traumatic and have less hospitalization time. Hence, we believe OrbusNeich can enjoy secular growth for the next five to 10 years.

OrbusNeich's share price reached its historical low in the second quarter of 2024, trading below its book value. We do not see a major change in the company’s fundamentals. Hence, we keep our fair value estimate of HKD 7.06 per share unchanged, indicating an upside of around 45%. Although it is difficult to time when sector rotations pivot or negative market sentiment improves, we reiterate a few basics of where OrbusNeich stands and of our investment thesis.

There was little surprise from no-moat OrbusNeich’s 2023 results, but we lower our fair value estimate to HKD 7.06 per share from HKD 7.40 after fine-tuning our long-term assumptions. We still think revenue can increase by double digits annually over the next three years, with secular tailwinds from the increasing adoption of minimally invasive procedures to treat cardiovascular diseases. Shares are trading at a 50% discount to our fair value estimate largely due to sector selloffs and weak appetite for Chinese shares.

OrbusNeich differentiates itself as a specialist global medical device maker, producing percutaneous coronary intervention, or PCI, and percutaneous transluminal angioplasty, or PTA, devices. These are more commonly known as stents and balloons. Minimally invasive procedures such as PCIs are preferred novel treatments when treating cardiovascular diseases. Compared with traditional chest-opening procedures, OrbusNeich’s products are less traumatic and have less hospitalization time. Hence, we believe OrbusNeich can enjoy secular growth for the next five to 10 years.

We transfer the coverage of no-moat Chinese medical device company OrbusNeich with a fair value estimate cut to HKD 7.40 per share from HKD 9.80 per share as we factor in slowing revenue growth. Despite the valuation changes, we think OrbusNeich is worth buying. It is the fourth-largest percutaneous coronary intervention balloon provider in Europe and the second-largest in Japan by market share. The stock currently trades at a 31% discount to our fair value estimate. At our fair value estimate, OrbusNeich would trade on 14 times enterprise value/EBITDA, at the low end of its peer group. We think the discount is warranted given its relatively smaller product portfolio.

OrbusNeich differentiates itself as a specialist global medical device maker, producing percutaneous coronary intervention, or PCI, and percutaneous transluminal angioplasty, or PTA, devices. These are more commonly known as stents and balloons. Minimally invasive procedures such as PCI and PTA are preferred treatments when treating cardiovascular diseases. Compared with traditional chest-opening procedures, OrbusNeich’s products are less traumatic and have less hospitalization time. Hence, we believe OrbusNeich can enjoy secular growth for the next five to 10 years.

No-moat OrbusNeich reported interim earnings that were in line with our optimistic expectations. Revenue growth was 23.5% year on year after adjusting for foreign exchange fluctuations, which were significant in Japan and China. This is lower than our expectation of 30%, which we attribute to sluggish sales in China. Operating profit margin for the six months was 27.7% when calculated with cost of sales; selling, general, and administrative expenses; and research and development. This is 3.8 percentage points better than the same period in 2022 after removing the effect of last year’s listing expenses. We consider this a strong report due to the margin improvement, and we raise our fair value estimate to HKD 9.80 per share (from HKD 9.40) to reflect this.

No-moat OrbusNeich is a China-based maker of interventional devices used in minimally invasive procedures to treat cardiovascular disease, especially balloon catheters. We expect this market to have long-term structural growth due to increasing prevalence of cardiovascular disease around the world and wider adoption of minimally invasive procedures.

No-moat OrbusNeich is a China-based maker of interventional devices used in minimally invasive procedures to treat cardiovascular disease, especially balloon catheters. We expect this market to have long-term structural growth due to increasing prevalence of cardiovascular disease around the world and wider adoption of minimally invasive procedures.

We initiate coverage on OrbusNeich Medical Group with a no-moat rating and a fair value estimate of HKD 9.40 per share. We view it as fairly valued right now. We think the stock is worth watching over the next five years as it expands its product offerings. We expect OrbusNeich’s EPS to grow at a five-year CAGR of 13.6%.