Company Profile

Established in 1999, Chongqing Xishan Science & Technology Co., Ltd., a national high-tech enterprise which include R&D, manufacture, sales and service of digital minimally invasive surgical devices and medical consumables, is the National Intellectual Property Demonstration Enterprise, the Leading Enterprise of the National Bio-industry Base, the winner of China Patent Excellence Award, and the national authorized constitutor of the Industrial Standard for Chinese Electric Osseous Tissue Surgical Instrument.

Focusing on the research and development of minimally invasive surgical equipment for 19 years, Xishan is now owning various products categories such as surgical power devices, endoscope systems, energy surgery equipment, and monitoring systems. In the filed of surgical power devices, Xishan products have developed as national leading brand products and achieved advanced technology level among the world. It obtained the approval of CE Certificate, KFDA, CMD for its DK series, and possesses over 300 patent rights （7 are invention rights）， which are the highest among the filed of global surgical power device. （Source: MedicalExpo）

Comments

Chongqing Xishan Science & Technology （“the company”） is a leading company in the field of surgical power devices in China.

The company has developed into one of the leading enterprises in the field of surgical power devices in China. The company’s business has evolved from single equipment to single department solutions and then to multi-department solutions. The company’s product line has covered surgical power devices, endoscopic systems, energy surgery equipment and others.

Surgical power devices are important tools for minimally invasive surgery and has broad market potential.

Surgical power devices are important routine surgical tools widely used in surgical treatment, especially minimally invasive surgery. The market potential and future growth trend are highly correlated with the number of patients and the volume of surgeries in various departments.

It is estimated that the market sizes of surgical power complete sets, consumables and accessories will reach 586 million yuan, 5.488 billion yuan and 117 million yuan in 2025, respectively. In 2021, the proportion of domestic brands exceeded 30%, and the trend of domestic substitution has taken shape.

Company business: leading technology, excellent performance, and promising business model.

The company is one of the pioneer enterprises in China to carry out the research, development and industrialization of surgical power devices. The company works out the core process for independent development, builds production capacity for the whole chain, and constructs a rich product mix.

In terms of product performance, the company’s overall product performance parameters and technical level are relatively close to imported product, and some performance is even better than imported products.

In addition, the company has an excellent business model. The steady sale growth of surgical power complete sets has driven the rapid increase of consumables. It is expected that the company's disposable consumables will become an important engine that drives its future performance growth.

Earnings forecast and investment recommendation

We estimate the company’s EPS at CNY2.24, CNY3.03 and CNY4.09 for 2023, 2024 and 2025, respectively, implying a PE ratio of 61.4x, 45.4x and 33.6x, based on the closing price on June 19, 2023. The valuation is reasonable compared the with comparable companies.

The company is a leader in the subsector of surgical power devices, a sector that still has great potential for domestic substitution. The company’s market position is high. We are optimistic about the company’s long-term development.

We cover the company for the first time and give it a rating of “Outperform”。

Potential risks

The risk of slower-than-expected progress of one-off consumables and market penetration rate; continuous decline in product unit price; slower-than-expected progress of R&D; the loss of technical talents; the risk of intellectual property rights; and the risk of effective controllers.