The first semi-annual report of an A-share medical imaging equipment company has been released.

Recently, the financial report for the first half of 2023 released by Lianying Medical (688271.SH) showed that revenue and net profit to parent were 5.271 billion yuan and 938 million yuan respectively, up 26.35% and 21.19% year-on-year respectively.

“Mainly due to the recovery of the global medical device market and the company's continued provision of high-quality innovative products and services to the market.” Lianying Medical explained.

Subsidies are still Lianying Medical's profit “booster”. In the first half of 2023, other revenue, including various subsidies, reached 273 million yuan, an increase of 21.33% over the previous year. Among them, it reached 165 million yuan in the second quarter, an increase of 52.78% over the previous year.

Although revenue growth from X-ray computed tomography (“CT”) is limited, revenue from magnetic resonance imaging (“MR”) has increased significantly.

In the first half of 2023, CT generated revenue of only 2,094 billion yuan, an increase of 7.30% over the previous year. During the same period, MR's revenue had reached 1,501 billion yuan, an increase of 66.43% over the previous year.

Whether MR can support “half of Lianying's medical income” in the future is drawing much attention.

When to get rid of dependency

Since this year, the pharmaceutical industry has faced challenges in terms of valuation and performance, yet there are still some companies that have maintained a steady growth rate.

In the first half of 2023, Lianying Medical's revenue and net profit to the parent group were 5.271 billion yuan and 938 million yuan respectively, up 26.35% and 21.19% year-on-year respectively.

“Mainly due to the recovery of the global medical device market and the company's continued provision of high-quality innovative products and services to the market.” Lianying Medical explained, “It demonstrates the effectiveness of the company's cost control and product pricing strategies, and provides strong support for future R&D and market expansion.”

A more critical factor may point to subsidies that have always been profit “boosters.”

In 2022, other revenue, including various scientific research grants, reached 592 million yuan, accounting for nearly 30% of total profit. In the first half of 2023, this figure still reached 273 million yuan, accounting for 26.07% of total profit. Of these, it reached 165 million yuan in the second quarter, an increase of 52.78% over the previous quarter.

When to take off the “big milk” label is still a test facing Lianying Medical.

In addition to this, cost categories are still eroding Lianying Medical's profits. In the first half of 2023, sales expenses and R&D expenses were 824 million yuan and 885 million yuan respectively, up 55.90% and 75% year-on-year respectively.

“(Sales expenses) are mainly due to the increase in sales labor costs, travel, and conference expenses during the reporting period as business grew.” Lianying Medical explained.

In response, Cui Wenliang, a pharmaceutical industry analyst at Huaxi Securities, said that considering changes in data such as cost rates and product structure, Lianying Medical's profit forecast for 2023 has been lowered.

Cui Wenliang expects net profit from 2023 to 2025 to be 2,082/26.07/3,273 billion yuan, a slight decline from the original forecast of 21.50/2,713/3,281 million yuan for the same period.

Specifically, Lianying Medical's revenue from CT and MR imaging products has all achieved a certain increase.

Among them, MR increased most significantly, generating revenue of 1,501 billion yuan in the first half of 2023, an increase of 66.43% over the previous year, accounting for 28.48%.

“(In the first half of this year), ultra-high field MR above 3.0T had the highest share of the new domestic market share.” Lianying Medical explained.

According to medical device data cloud data, Lianying Medical's 3.0t UMR870 ranked 20th in the first half of this year in the sales amount of medical imaging devices. This is the only domestically produced MR on the list.

It is worth mentioning that previously, it was reported on the Internet that Lianying Medical's 3.0T MR price was about 3 million yuan/unit, but TradeWind01 (ID: TradeWind01) checked the tender notice and found that the prices of 3.0T products such as the UMR870 were not much different from those of foreign companies; they were all at the level of 10 million yuan.

In the announcement of winning the bid for the medical equipment renewal project of Wuxue First People's Hospital in December 2022, the winning bid price for uMR870 was 19.5 million yuan. In August of the same year, the radiology department of the Oncology Center of Union Medical College Affiliated to Tongji Medical College of Huazhong University of Science and Technology purchased the 3.0T MR (Ingenia) produced by Philips for 1.97 million yuan.

Lianying Medical's price “motivation” may come from the fact that there are currently no domestic brands that can compete with it.

Currently, among listed companies, only Wandong Medical (600055.SH)'s 3.0T MR has entered the R&D stage, and there is no news related to this category from other manufacturers.

In the context of medical equipment procurement supporting localization, Lianying Medical still has a certain advantage in the 3.0T MR competition.

The future of a sinking market

The “Thousand Counties Project” is an important growth point in the commercial performance of domestic medical imaging equipment.

In November 2021, the “Thousand Counties Project” County Hospital Comprehensive Capacity Enhancement Work Plan (2021-2025)” issued by the National Health and Health Commission states that it will strive to make at least 1,000 county hospitals nationwide reach the level of medical service capacity of tertiary hospitals through 5 years of effort;

In March of this year, the “Large-scale Medical Equipment Configuration License Management Catalogue (2023)” issued by the National Health and Health Commission showed that CT with 64 rows and above, MRs with 1.5T and above were all removed from management items, etc., that is, they can be purchased without further approval from the Health and Health Commission and other relevant departments. This is also viewed by the industry as further loosening the purchase of high-end medical imaging equipment by relevant departments;

In August of this year, the National Health and Health Commission also issued the “Equipment Configuration Standards for County-level General Hospitals” (hereinafter referred to as “County-level Standards”) to further clarify the minimum quantity of medical imaging equipment purchased by county-level hospitals.

According to county-level standards, county-level general hospitals with a size of no more than 1,500 beds are required to purchase medical imaging equipment such as CT and MR. Depending on the size of beds, the minimum purchase quantity ranges from 1 to 3 units.

However, whether this could be an opportunity for a high-end medical imaging provider has always been a source of confusion in the market.

For example, whether county-level medical institutions have the ability to pay for a 3.0T MR device with a price close to 20 million yuan remains to be verified.

In response, a relevant person close to Lianying Medical explained to TradeWind01 (ID: TradeWind01) that the cancellation of large-scale allocation licenses and the establishment of county communities have enhanced the payment capacity of county-level hospitals, and that high-end products still have potential for growth.

“Previously, when the Qianxian Project established a county community, it was the county hospital that took the lead. There was no way for the county hospital to participate in the procurement of township health centers, but now the government platform coordinates equipment procurement. Therefore, there is actually a market for high-end medical imaging equipment in counties and towns now.” The person said.

With limited growth in CT revenue, the “behest”, MR is also an important opportunity for Lianying Medical in the future. In the first half of 2023, Lianying Medical's CT revenue generated 2,094 billion yuan, an increase of only 7.30% over the previous year.

This is an inevitable outcome that CT will have to face after the epidemic recedes.

On the one hand, medical institutions have increased their procurement of CT in the past three years due to demand for epidemic prevention and control. However, as the situation changes, the increase in CT equipment sales revenue may be unsustainable;

On the other hand, despite the promotion of policies such as the “Thousand Counties Project,” CTs purchased in the past may already meet the daily use needs of medical institutions. In addition, CT has been in use for 10-15 years, so it may be difficult for CT to be purchased in large quantities again in the short term.

Seen in this way, whether MR, which has more competitive prices, can seize the “Qianxian Project” opportunity to further boost revenue is the key to whether Lianying Medical's performance can maintain a sufficient growth rate.

At the same time, overseas markets are proof of Lianying's medical technology and commercialization capabilities. In the first half of 2023, the overseas market generated 718 million yuan in revenue, an increase of 32.29% over the previous year, accounting for 13.62%.

The real test of Lianying Medical's performance is coming.