The collective procurement risks are gradually being cleared, and AK MEDICAL (01789), which has returned to double-digit revenue growth, is stepping onto the digital orthopedic trend.

Since April of this year, the Hong Kong stock market has experienced significant fluctuations due to external factors, with many stocks experiencing significant pullbacks. However, there are also stocks that quickly rebounded after hitting bottom, and AK MEDICAL (01789) is one of them. It can be observed that since the uptrend started on February 6th, AK MEDICAL's stock price has steadily risen along the 30-day moving average. Even on April 7th, when the stock price dropped by 11.35% due to the market's severe tremors and tested the 30-day moving average, AK MEDICAL's stock price quickly rebounded the next day, stabilizing above the 30-day moving average, showing strong risk resistance. In terms of performance support, according to the company's disclosed 2024 annual report, the company's revenue reached 1.346 billion RMB, a year-on-year increase of 23.1%; the company's net profit attributable to equity shareholders was 274 million RMB, a year-on-year increase of 50.4%. This reflects that in 2024, most of AK MEDICAL's joint products have cleared the risk of price reduction through centralized procurement, and after the execution of the joint national procurement results in the second half of last year, the company's revenue growth has achieved a recovery. While enhancing its defensive asset risk resistance, AK MEDICAL is also accelerating its transformation towards digital orthopedics and orthopedic surgery Siasun Robot & Automation direction, seeking more offensive asset increments. Behind the increase in buying of Southbound funds Since December last year, the Southbound Hong Kong Stock Connect funds have accelerated their holdings of AK MEDICAL. From November last year to April this year, the holding ratio increased from 16.73% on December 2nd last year to 21.61% on April 16th this year, with the holding market value increasing to nearly 1.4 billion Hong Kong dollars. However, changes in the logic of Southbound funds' increased holdings can be clearly seen from the company's interval stock price changes. In December last year and January this year, AK MEDICAL's stock price fell by 8.99% and 6.78% respectively on a month-on-month basis, but in February and March this year, the company's stock price rose by 6.85% and 21.77% respectively on a month-on-month basis. It is not difficult to see that in December last year and January this year, the purchases of Southbound funds followed the logic of "buying more as the price falls", but starting from February, Southbound funds began to accelerate their purchases regardless of the company's stock price increase, only slowing down in April due to the impact of the Hang Seng Index. This may be related to the positive news on both the defensive and offensive assets of AK MEDICAL. Since peaking at 26.89 Hong Kong dollars in July 2020, AK MEDICAL entered a downward trend lasting 22 months, with the stock price declining all the way to a low of 3.68 Hong Kong dollars in April 2022, with a cumulative decline of 86.31%. Although AK MEDICAL's stock price rebounded by 49.23% in 2022, it fell by 35.46% in 2023 and 21.74% in 2024. The low valuation of AK MEDICAL in recent years may be related to centralized procurement. Due to the impact of centralized procurement on the domestic orthopedic industry in 2022-2023, the market size significantly shrank as the price exchange for volume did not meet expectations. However, in the joint national procurement concluded last year, AK was selected in group A in all product groups, and except for a slight decrease in the bid price for the small demand gold-copper hip joint (2% of the total bid volume for hip and knee), the bid prices for the other products were increased, with individual products realizing an increase in ex-factory prices. Therefore, AK MEDICAL's revenue in 2025 is expected to achieve a recovery growth from a low base, reversing the risks brought by centralized procurement. The performance disclosed by the company this time is in line with the market's judgment. It is understood that the results of the joint national procurement have been implemented in various provinces since July last year, and AK has continued to excel in this round of national procurement continuation. In terms of procurement volume, the volume of this round of purchases has increased by about 10% compared to the first round of centralized procurement; in terms of bid prices, except for a slight decrease in the bid price for the small demand gold-copper joints, the bid prices for the other products have been increased. Driven by the increase in both volume and price, AK MEDICAL's revenue from centralized procurement products increased by 30% year-on-year in the current year, and the proportion of revenue from these products increased by 61% year-on-year. This also means that the core business line of centralized procurement risks has been cleared. In addition, data shows that AK MEDICAL is gaining more market share in top hospitals in China. According to the latest sales volume report, AK currently accounts for 20% of the domestic market sales volume, the market share of its implant products in the top 10 hospitals has been rising for the 4th consecutive year and reached 19% in 2024. In terms of overseas markets, the company's overseas revenue increased by 21% compared to the same period, reaching 38% if including collaborative sales, and with more products registered, the market expansion extends to emerging markets. Can AK MEDICAL seize the opportunity in digital orthopedics? In recent years, as centralized procurement has exerted pressure on prices in the four traditional orthopedic fields of artificial joints, trauma, spine, and sports medicine, orthopedic surgery Siasun Robot & Automation has gradually become the unified direction for the development of leading companies. From a market perspective, according to Frost & Sullivan's forecast, the global and Chinese market for orthopedic surgery Siasun Robot & Automation is expected to grow rapidly in the future. It is predicted that by 2030, the market size of orthopedic surgery Siasun Robot & Automation in China will reach 70.952 billion RMB with a compound annual growth rate of 36.9%. Data from the National Medical Products Administration shows that between 2014 and 2020, only 10 domestic orthopedic surgery Siasun Robot & Automation products from 8 companies in China were approved. By the end of 2024, a total of 115 orthopedic surgery Siasun Robot & Automation products from 64 companies have been approved nationwide, covering various subfields of orthopedic surgery Siasun Robot & Automation such as endoscopy, orthopedics, neurosurgery, and puncture. Chinese brands accounted for 81.7% of the total approved products, with 94 products approved, while imported brands totaled21 models, accounting for 18.3% of the total.As for domestic surgical robots, Siasun Robot & Automation currently dominates the market with a total market share of about 74%, with the majority of the market focused on minimally invasive surgery Siasun Robot & Automation and orthopedic surgery Siasun Robot & Automation. It is understood that orthopedic surgery Siasun Robot & Automation is mainly used in joint replacement surgery, spinal surgery, and orthopedic trauma surgery, with assisted joint replacement surgery Siasun Robot & Automation being the most widely applied and complex among these three types of surgeries. Since 2022, the number of registered orthopedic surgery robots in China has surged, with the first domestically produced motion medical surgical robot being approved by the National Medical Products Administration in September 2024. As of now, the domestic registration ratio has exceeded 90%. By 2024, the domestication rate of orthopedic surgery Siasun Robot & Automation in the domestic market has reached over 70%. This means that currently, domestically produced Siasun Robot & Automation products are developing on equal footing with overseas products in the field of orthopedic surgery. In the emerging field of digital orthopedics, AK MEDICAL is the only domestic company that offers a full-process solution. The company's 3D custom joint implants combine preoperative planning, iCOS customization platform, 3D printing manufacturing, and surgical navigation Siasun Robot & Automation system to form a technological loop and achieve commercialization in all aspects. In addition, the company has introduced the joint visualization intelligent assisted navigation system (VTS), which has assisted in over 1,000 surgeries domestically and internationally by the end of 2024, as well as hip joint surgery Siasun Robot & Automation. In 2024, the knee joint surgery Siasun Robot & Automation was approved, marking the company's comprehensive layout in the digital orthopedic field of hip and knee joints. The management of the company expects to introduce a comprehensive solution in the field of digital orthopedics, including the intelligent orthopedic surgery system (ICOS) and consumables, with an expected revenue of 100 million RMB within 3 years. In terms of market competition, the domestic orthopedic surgery robot companies include Microport Medical, Genolife Medical, Yuanshi Intelligence, and Tianzhihang. In 2024, in the domestic orthopedic surgery robot market, Tianzhihang ranked first in terms of sales volume and revenue. In the domestic market for joint orthopedic surgery robots, Tianzhihang and Smith & Nephew ranked in the top two in market share, while Jie Maibangmei and Yuanshi Intelligence ranked third and fourth. Their combined market share (CR4) is close to 80%. Therefore, for AK MEDICAL, although the risks of centralized procurement have been gradually cleared, there is still room for improvement and catching up in more aggressive assets such as digital orthopedics and orthopedic surgery robots. Nonetheless, the market still sees its competitiveness in this field. Huatai previously stated that looking ahead to 2025, considering the gradual recovery of domestic and foreign surgery volumes and possible joint repurchases, AK MEDICAL's net profit in 2025 is expected to increase by 23% year-on-year, and the company is likely to enter a new cycle of rising volume and price.