CICC released a research report maintaining AK Medical's (01789) 2025 EPS forecast at RMB 0.30 and 2026 EPS forecast at RMB 0.36. The current price corresponds to 17.2x/14.3x P/E for 2025-2026. The firm maintains its "Outperform Industry" rating and target price of HKD 7.11, representing 22.1x/18.3x P/E for 2025-2026, with 26.73% upside potential from the latest closing price.
AK Medical announced its 1H25 results with revenue of RMB 694 million, up 5.7% year-on-year; net profit attributable to shareholders of RMB 161 million, up 15.3% year-on-year, corresponding to diluted earnings per share of RMB 0.14. The results met expectations.
CICC's main viewpoints are as follows:
**1H25 Core Business Maintains Growth, Overseas Sales Expected to Accelerate in Second Half**
1H25 company performance showed modest growth, maintaining industry-leading position: Hip joint business revenue reached RMB 410 million, up 14% year-on-year, maintaining the higher growth rate from the second half of last year; knee joint business revenue was approximately RMB 194 million, down about 0.7% year-on-year, mainly due to unicondylar product price adjustments and returns/exchanges.
Overseas sales revenue was RMB 128 million. The company estimates that after adjusting for domestic deliveries ultimately used overseas, the actual growth rate reached approximately 7%. Southeast Asia and Central Asia regions showed outstanding performance with revenue growth of approximately 60% and 30% respectively. Considering cross-border payment delays, 2H25 overseas revenue is expected to grow further.
**Continued Policy Support, Digital Orthopedics Plan Fully Launched**
In 1H25, the National Healthcare Security Administration held five consecutive themed symposiums supporting innovative medical devices. The National Medical Products Administration optimized the lifecycle regulatory mechanism for high-end medical devices, clearly supporting the development of innovative products such as surgical robots and 3D-printed orthopedic implants.
Responding to policy support, the company has initiated digital transformation with 7 products currently in the innovation pathway. The company has established 5 digital orthopedics training centers with intelligent equipment covering 50 hospitals. The company plans to build a complete ecosystem covering pre-operative (AI surgical planning), intra-operative (robotics/navigation), and post-operative (patient management) phases, driving growth in orthopedic intelligent assistive equipment installations.
**Revenue Growth + Cost Control Drive Net Margin Expansion**
1H25 gross margin was 59.1%, down 1.5 percentage points year-on-year, mainly affected by the decline in spinal product revenue proportion. Benefiting from revenue growth and cost control, net profit increased 15.3% year-on-year, with net profit margin reaching 23.1%, up 1.9 percentage points year-on-year. Sales expense ratio/administrative expense ratio/R&D expense ratio were 16.9%/11.1%/9.6%, changing by -0.3ppt, +0.1ppt, and -0.1ppt year-on-year respectively, remaining basically stable.
**Risk Warnings:** Volume-based procurement results below expectations; new product launch progress below expectations; exchange rate fluctuations; unexpected medical events.