Research published by Blue Lotus Research on January 25, 2022

 

(30 Pages, 31 graphs and tables)
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• Surgical robot today is a precursor product of the eventual AI-enabled, decision capable one of the future. Current surgical robot’s medical benefit is confined to a narrow set of procedures and a narrow set of matrices;
• Domestic surgical robots have no competitive advantage against global products except price and implicit government support. To fight for install base ahead of state procurement, we believe a price war will erupt soon;
• We initiate with SELL with TP of HK$18.3. We prefer to come in after the price war.

 
This robot isn’t that robot
Surgical robot today isn’t robot per say. Most of them not only requires the surgical doctor’s eyes but also his/her hands, to operate. The official Chinese name, endoscopic surgical instrument control system (内窥镜手术器械控制系统), revealed its true nature. It is more expensive to operate, requires additional training, and has advantage over traditional surgery only in a narrow set of procedures. We estimate the China surgical robot market size to be Rmb2.7 bn in 2020. We expect it to grow 38% CAGR to Rmb13.8 bn by 2025.
 
Surgical robot in China is hard to reach same popularity as US
MediCare and commercial insurance cover most surgical robot costs in US, resulting in reduced invasiveness and faster recovery in some procedures. The cost is harder to justify in China, except in better fiscal-balanced cities.
 
The competitive moat is shallow for now
In addition to patent infringement uncertainties from the global players, we also found domestic surgical robots relying heavily on imported components. Since surgical robots require extensive doctors training and each product is incompatible with the other, we foresee domestic players offering steep price cuts to build the installed base, especially in laparoscopic robots.
 
Supply chain migration to China is the key
The key to Intuitive Surgical’s (IS) high gross margin is its consumables, which also opens the door for MedBot to overcome IS’s competitive moat. We would turn positive on MedBot if it can produce consumable at a much lower cost.

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