CICC: Maintaining Guichuang Tongqiao (02190)'s “Outperform the Industry” rating target price of HK$32, strategic investment, pioneer technology development platform layout

The Zhitong Finance App learned that CICC released a research report stating that it maintains the Guichuang Tongqiao (02190) “outperforms the industry” rating and target price of HK$32. Based on the DCF valuation model, the weighted average cost of capital (WACC) is 11.4%, and the sustainable growth rate is 2.2%. The target price corresponding to 2026 and 2027 price-earnings ratios is 26 times and 20 times, respectively, with 65% upside compared to the current stock price. The bank kept the company's adjusted net profit forecasts for 2026 and 2027 unchanged at $385 million and $484 million, respectively. On November 6, Guichuang Tongqiao announced that it plans to join Telford Capital to strategically invest in Xianjian Technology and issue additional H shares to Telford's entities. The bank believes that this strategic investment is expected to expand the company's platform layout, and the complementarity between the two sides in terms of product portfolios and market channels is worth looking forward to.

CICC's main views are as follows:

Strategic investment development platform layout

Guichuang Tongqiao plans to invest about HK$889 million and hold 60% of the shares in the investment platform; the platform will subscribe for new shares of Xianjian Technology for about HK$1,482 million, hold about 16.7% of the shares after completion, and will indirectly enjoy about 10% of Guichuang Tongqiao's economic interests.

Meanwhile, Telford Capital plans to subscribe for 39.8 million new shares of Chuangtongqiao at HK$22 per share, a 13.5% premium over the closing price on the day of the announcement. It is estimated that the net capital raised will be approximately HK$864 million.

On the management side, Guichuang Tongqiao's management will go to Xianjian Technology as CEO and CFO. At this stage, the two parties still maintain the status of independent listed companies, and important matters of Xianjian Technology are decided by its board of directors.

The collaboration between management and R&D is worth looking forward to

The announcement stated that the product portfolios and market channels of the two sides are complementary. According to CICC's judgment, Guichuang Tongqiao's neurological and peripheral intervention layout can be combined with Xianjian Technology's aortic and structural core products to improve commercialization efficiency through sharing of doctors' and dealer resources and overseas cross-sales; complementary R&D and manufacturing experiences also help optimize product development processes and operational efficiency.

Focus on profit contributions and shareholder returns

The investment was accompanied by an increase in Guichuang Tongqiao's share capital. The bank determined that under the current structure, Xianjian Technology will contribute investment profit and loss according to the equity law. The short-term earnings per share (EPS) impact depends on Xianjian Technology's profit, delivery time, and repurchase execution.

The bank expects that operational improvements and cost optimization will help increase investment returns and mitigate dilution. The company is also expected to continue cash dividends and increase repurchases to maintain a balance between business expansion and shareholder returns.

Risk Alerts

Procurement and health insurance fee control exceeded expectations; commercialization of new products fell short of expectations; merger and acquisition integration fell short of expectations.