OrbusNeich Earnings: Results Meet Our High Expectations; Raising Fair Value Estimate 4% to HKD 9.80

No-moat OrbusNeich 06929 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.

The company’s gross profit margin improved 2.3 percentage points due to fast growth in sales of scoring balloons, a high-margin product category. This includes strong sales of the ScoreFlex Trio in Japan, which we view as one of OrbusNeich’s most cutting-edge specialty balloons. Scoring balloons contributed 38.9% of total revenue this period, up from 35.9% in last year’s first half and similar to the second half. Management also cited increased utilization as a factor in margin improvement.

We maintain our view that OrbusNeich’s ability to replicate its success in balloon catheters in a broader range of product categories is crucial to its long-term growth. Some of its key pipeline products include a tricuspid valve replacement system, a suite of neurovascular devices, and a sirolimus-coated drug-eluting balloon. Not only will this diversify its business exposure to more types of medical devices, it will also deepen its relationship with hospitals and practitioners and help it build a moat.