OrbusNeich: Initiating Coverage of Chinese Coronary Balloon Maker With HKD 9.40 Fair Value Estimate

We initiate coverage on OrbusNeich Medical Group 06929 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%.

OrbusNeich is an endovascular medical device maker based in China, and has demonstrated a strong ability to develop, manufacture, and commercialize balloon catheters. Unlike most medical device makers in China, OrbusNeich generates profits and has succeeded in establishing a global presence in this product category.

OrbusNeich’s main products are coronary balloon catheters, coronary stents, and peripheral balloon catheters, which respectively contributed 75%, 9%, and 8% of total revenue in 2022. Flagship products include its ultra-narrow balloons and scoring balloons, which require high-precision engineering and are designed to meet the special clinical needs of physicians. As of 2021, its coronary balloons held top-four positions in Japan and Europe. In both of these territories, balloon angioplasty is used extensively and physicians have discerning preferences.

However, we do not think the company currently has a moat. Most of its revenue comes from balloon catheters, a product category that historically has limited room for long-term differentiation. We think its ability to create a moat depends on whether it can broaden its portfolio over the next five years in new product segments, which will diversify its product offerings and also allow it to deepen its relationship with hospitals and physicians. Some of its key pipeline products include a tricuspid valve replacement system, a suite of neurovascular devices, and a sirolimus-coated drug-eluting balloon. Replicating its success in balloon catheters with these product lines will be crucial for driving share price performance over the next five years.