CMB International: Maintains "Buy" rating for AK MEDICAL (01789), with a target price of HKD 8.44.

China Everbright International (01789) released a research report stating that it maintains a "buy" rating for AK MEDICAL with a target price of HK$8.44. The company has lowered its revenue and net profit guidance for 2023, with revenue expected to remain flat compared to 2022, lower than the previously expected 30% year-on-year growth in revenue. Due to the significant impact of the market environment on high-margin non-tender products, the net profit margin is expected to slightly decrease compared to 2022. The company believes that the volume of orthopedic surgeries will recover in 2024 and maintains a forecast of at least 30% year-on-year revenue growth and a net profit margin exceeding 20% for 2024. The report states that in the first half of 2023, 48% of AK MEDICAL's domestic revenue comes from high-margin non-tender products such as refurbishment, 3D printed spinal implants, unicompartmental knee replacements, and customized products (ICOS). However, the company stated that since August, due to the impact of the market environment, clinicians usually choose to use products from tendered product lines, and they are more cautious about using non-tendered products. As a result, the company's revenue and profit have been greatly affected. As for surgical volumes, the company saw a slight increase in August, a year-on-year decrease of about 10% in September, a slight recovery in October, and a year-on-year flat growth. The management expects surgical volumes to return to normal after the Chinese New Year. AK MEDICAL expects joint tendering to start contract extension work before the end of the year and be implemented in April 2024. The bank believes that the contract extension for joint tenders is expected to continue the rules for brackets and trauma products and compress the price difference. AK MEDICAL's products had lower winning bids in the first round of tendering, so it is expected that they can raise prices after the contract extension and regain market share in the hip joint market with good market reputation and broad market channels, which were previously lost due to limited profit margins and lack of enthusiasm from distributors.