Summary of China Medtech Q325 Conference Call Industry Overview - **Industry**: China Medtech - **Key Findings**: The Q325 results of 109 A-share medtech companies showed a median revenue decline of 0.5% YoY, an improvement from -0.7% in Q225. The equipment segment outperformed, with a revenue growth of 10.4% YoY, while IVD (In Vitro Diagnostics) continued to decline at -13.1% YoY [2][4][10]. Core Insights - **Revenue Performance**: - Overall revenue for Q325 was largely flat YoY, with equipment showing robust growth [2]. - Equipment revenue growth was attributed to tender recovery, while IVD revenue decline was linked to panel test unbundling and reagent price cuts [2][3]. - Consumables revenue growth was minimal at 0.1% YoY, with significant variance across companies [2]. - **Profitability Metrics**: - Net profit (NP) to parent remained flat at 0.3% YoY in Q325, a recovery from -10.5% in Q225 [2]. - Equipment segment NP growth was notable at 33.7% YoY, likely due to a low base effect [2]. - NP for IVD and consumables companies decreased by 20.9% and 14.6% YoY, respectively [2]. - **Gross Profit Margin (GPM)**: - GPM for IVD and equipment segments dropped by 3.1 percentage points and 1.3 percentage points, respectively, primarily due to price-related initiatives [2][11]. Domestic Market Dynamics - **VBP (Volume-Based Procurement)**: - Recent proposals by China's NHSA aimed at reducing intense price competition in VBPs, with outcomes still uncertain [3]. - Key catalysts include the results of large-scale VBPs, such as Round 6 national consumables VBP [3]. - **Hospital Equipment Procurement**: - Although tender growth YoY slowed in Q325, equipment companies are expected to see meaningful revenue growth due to recent tender improvements [3]. Overseas Market Challenges - **Geopolitical Risks**: - Ongoing geopolitical tensions are anticipated to impact overseas potential for domestic firms, despite limited current effects [4]. - The US has announced a 100% additional tariff on Chinese imports effective November 1, 2025, and a Section 232 Investigation for medtech is underway [4]. - EU market access restrictions are in place, but the impact has been limited as hospitals may adopt single-source procurement to bypass these restrictions [4]. Investment Recommendations - **Top Picks**: - **United Imaging**: Expected robust revenue growth driven by new product launches and import substitution benefits [5]. - **New Industries**: Anticipated acceleration in revenue and NP growth due to domestic recovery and overseas expansion [5]. - **Weigao**: Projected revenue growth acceleration in H225, with potential synergies from transactions with its parent company [5]. Valuation Metrics - **Market Valuation**: The median PE/PEG for the medtech coverage is 25.0x/1.5x for 2026E [5][7]. - **Company Valuations**: - United Imaging: PE of 49.7x, expected revenue growth of 22.5% [7]. - New Industries: PE of 24.0x, expected revenue growth of 11.7% [7]. - Weigao: PE of 9.9x, expected revenue growth of 6.8% [7]. Risks and Considerations - **Key Risks**: - Price reductions and market share gains from VBP programs may be larger than expected [20][22]. - Weaker-than-expected demand from equipment renewal programs [20][22]. - Geopolitical risks affecting supply chains [20][22]. - Slower-than-expected product R&D and technological breakthroughs [20][22]. Conclusion The China Medtech industry is experiencing a mixed performance with equipment segments showing resilience while IVD continues to face challenges. Geopolitical tensions and domestic procurement policies will be critical factors influencing future growth. Investors are advised to focus on companies with strong growth potential and to remain cautious of the outlined risks.

Core Viewpoint - Haixi New Drug, the first pharmaceutical company in Fujian to obtain a drug production license, is advancing its IPO process on the Hong Kong Stock Exchange, showcasing significant revenue growth but facing various operational risks [1][2]. Financial Performance - Haixi New Drug's revenue surged from 2.12 billion in 2022 to 4.67 billion in 2024, with a net profit increase from 690 million to 1.36 billion during the same period, reflecting a compound annual growth rate (CAGR) of 48.2% for revenue and 40.5% for net profit [4]. - In the first five months of 2025, the company reported revenue of 2.49 billion and a net profit of 902 million [4][20]. Revenue Dependence and Risks - The company heavily relies on 13 approved generic drugs, with 4 included in the national volume-based procurement (VBP) program, leading to a significant dependency on VBP products, which accounted for 72.6% of revenue in 2024 [6]. - The top five customers contributed over 70% of total revenue, with the largest customer accounting for 44.5% [6]. - Key VBP products are approaching contract expiration, with two set to expire by the end of 2025 and others in subsequent years, raising concerns about future revenue stability [6][7]. Cash Flow and Financial Health - Despite impressive revenue growth, the company's cash flow is under pressure, with a cash balance of only 380 million at the end of 2024, covering just 21% of current liabilities [15][21]. - The operating cash flow has shown fluctuations, with a net cash flow of 1.64 billion in 2024, but a decline to 800 million in the first five months of 2025 [11]. Sales and Marketing Expenses - The sales expense ratio increased from 22% in 2022 to 35.5% in 2024, significantly higher than the industry average, which may erode profit margins [12][13]. - The rising sales costs are attributed to increased channel maintenance expenses and the need for additional marketing resources for newly included VBP products [12]. Innovation Pipeline - Haixi New Drug has four innovative drugs in development, but all are in early stages, with the first clinical trials just starting [17][19]. - The company’s R&D expenditure is relatively low, with rates below the industry threshold of 20%, which may hinder future innovation [19][23]. - The company plans to use funds from the IPO to support clinical development and expand its sales network, but faces competition from established products that are already ahead in the market [24]. Production Capacity Concerns - The company’s production facility in Chang Le has a designed capacity of 2 billion tablets per year, but actual sales in 2024 were only 460 million tablets, raising concerns about potential overcapacity [25].