During the pandemic, the company has seized more opportunities for extended mergers and acquisitions
The company has accelerated the pace of extended mergers and acquisitions since '21 and '22, and has completed 10 mergers and acquisitions in various specialized service fields. We think this validates that the company is in an advantageous position in the increasing number of mergers and acquisitions in the health services industry, and these opportunities mainly come from smaller healthcare service providers that have been hit hard by the pandemic. We believe the company will continue its aggressive M&A strategy in '22, mainly based on 1) smaller institutions still being negatively affected by the epidemic prevention measures in the first half of '22, 2) the company's platform can empower smaller institutions and achieve synergies (such as importing patient traffic and improving operational efficiency), and 3) a cash-rich and sound balance sheet (forecast of HK$274 million at the end of FY22).
Transforming into a multi-specialty healthcare service provider
In the field of ophthalmology, the company acquired the Guest Ophthalmology Specialist Center in January 2022. The acquisition strengthens the company's presence in the ophthalmology sector in Hong Kong. The acquisition increased the company's Hong Kong ophthalmologist team to about 30 people, of which 7 new people came from the former Guest Ophthalmology. The company also cut into the oral service track through the acquisition of Shenzhen-based Elkangjian Dental Group and three dental clinics in Hong Kong. At the same time, the company has also entered other specialties such as medical aesthetics, family medicine, and oncology. The company expects to achieve synergies and cost savings by strengthening its healthcare service platform.
Maintain a neutral rating and keep the target price unchanged at HK$4.8 based on the DCF valuation method. We have introduced financial forecasts for the 22/23 fiscal year. We expect the company to achieve revenue of HK$1,657 million/HK$1,984 million during the period (49%/20% year-on-year increase, of which about 20% came from endogenous growth in FY22), while adjusted net profit reached HK$93 million/HK$139 million (327%/48% year-on-year increase).
We rolled over the valuation base period to the end of FY22 and kept the target price unchanged at HK$4.8 based on the DCF valuation method. We are optimistic about the company's growth in extended mergers and acquisitions and its strategy to transform into a multi-specialty healthcare provider. However, our valuation model shows that the company's current stock price is reasonably valued. Therefore, we continue to maintain a neutral rating. Investment risks: Expansion falling short of expectations, COVID-19, regulatory and health insurance risks.
