CICC published a research report stating that due to higher-than-expected volume-based procurement price cuts and foreign exchange losses, the firm has revised down WEIGAO GROUP's (01066) net profit forecasts for 2025/2026 by 9.9%/10.4% to RMB 2.131 billion/RMB 2.35 billion respectively. The current stock price corresponds to 11.6x/10.4x P/E ratios for 2025/2026. CICC maintains its Outperform rating and, considering the upward movement in sector valuation center, maintains its HK$6.40 target price, corresponding to 12.6x 2025 P/E and 11.2x 2026 P/E, implying 8.5% upside potential.
CICC's key points are as follows:
1H25 Results Slightly Below Market Expectations but Sequential Recovery
The company announced 1H25 results: revenue of RMB 6.644 billion, up 0.1% year-over-year; net profit attributable to shareholders of RMB 1.008 billion, down 9.0% year-over-year; adjusted net profit attributable to shareholders of RMB 967 million, down 12.7% year-over-year, slightly below market expectations, mainly due to volume-based procurement price cuts exceeding expectations. 1H25 results showed sequential recovery, and CICC expects the second half to continue accelerating.
By business segment, in 1H25 the company's 1) Medical devices segment achieved revenue of RMB 3.191 billion (+0.1% YoY). CICC expects this segment's volume growth to remain in single digits, with prices facing slight pressure from volume-based procurement. However, CICC believes volume-based procurement is nearing its end with improving rules, and future sustained pricing pressure will be limited. The company's newly deployed perioperative products showed strong growth (1H25 +40% YoY) and are expected to benefit from volume-based procurement and import substitution. 2) Pharmaceutical packaging segment revenue was RMB 1.166 billion (-0.1% YoY), mainly impacted by volume-based procurement price cuts for flush syringes, while prefilled syringes achieved single-digit growth. CICC is optimistic about this segment, which is expected to benefit from GLP-1 injection pens, innovative drug launches, and overseas expansion potential. 3) Interventional segment revenue was RMB 1.10 billion (-1.3% YoY), with tariffs, foreign exchange, and increased new product promotion affecting this segment's revenue and profits. CICC believes the new thrombectomy system product is expected to rapidly scale up and drive accelerated performance in this segment. 4) Orthopedics segment revenue was RMB 733 million (-1.6% YoY), mainly due to revenue classification adjustments, while segmental profit increased significantly by 74%. The orthopedics existing business has entered stable rapid growth after volume-based procurement, while the company is actively expanding into minimally invasive spine, new materials, and digitalization.
Actively Expanding International Markets and Global Production Base Layout
In 1H25, the company's overseas revenue reached RMB 1.624 billion (+4% YoY), accounting for 24% of total revenue. The company is actively expanding overseas markets, coordinating various segments and the group, transitioning from a trading model to localized management. The company plans to relocate Argon's production capacity back to China and begin deploying general consumables capacity in Southeast Asia to reduce costs and tariff impacts.
Strong Financial Position, Maintaining 50% Dividend Ratio, and Active R&D and Asset Integration Investments
As of 1H25, the company had net cash of RMB 3.43 billion and operating cash flow of RMB 880 million. The company maintains a 50% dividend payout ratio. In 1H25, the company's R&D investment was RMB 316 million (+4.6% YoY), accounting for 4.7% of revenue. The company expects to have over 100 new products approved and launched from 2025-2027, including products in infusion therapy, urological consumables, respiratory anesthesia equipment and consumables, actively expanding and integrating the product pipeline.
Risk Factors: Volume-based procurement price cuts exceeding expectations, new product promotion falling short of expectations, internationalization falling short of expectations, deteriorating competitive landscape.