The results for 2022 were affected by business fluctuations at home and abroad. Optimistic about the return of patients to Jinxin Reproduction in 2023, announced that it achieved revenue of 2.36 billion yuan (+28.6% yoy) in 2022, net profit of 121 million yuan to the mother (down 64.4% year on year), and adjusted net profit of 274 million yuan (down 39.8% year on year).
In '22, the merger of Jinxin Women's and Children's Hospital/Yunnan business increased, driving a steady revenue growth rate; the profit side declined year-on-year, mainly due to the restructuring of the US HRC business and fluctuations in the operation of Jin Xin's hospitals. Looking ahead to 2023, considering the recovery in domestic medical treatment volume and the potential return of overseas patients, we are optimistic that the company's adjusted net profit in 2023 will exceed 500 million yuan, and expect the company's adjusted EPS in 2023-2025 to be 0.19/0.26/0.32 yuan.
Considering policies such as encouraging maternity allowances and the inclusion of potential medical insurance for assisted reproduction plus subsequent investment in new property capacity in Shenzhen, we raised the relative valuation and gave Jin Xin 31 times PE in 2023 (the same as the average expected average of its Hong Kong stock comparable company Wind in 23), with a target price of 6.79 Hong Kong dollars to maintain “buying”.
Southwest business: The ARS+ maternal and child business complements each other. I am optimistic that 1H23 patients will recover 1.38 billion yuan (+57% yoy) in 2022. Among them, revenue from the ARS business fell 10% year-on-year, and the newly acquired maternity business remained steady (contributing about 130 million yuan in net profit in '22), which was compounded and increased. Looking ahead to 23, we are optimistic that Chengdu's regional revenue will be impacted 15%. Consider:
1) ARS: We are optimistic about the return of patients and the continued penetration of special services driving both volume and price increases (penetration rate of 8.4% of special needs services in '22); 2) Maternal and child business: We are optimistic about its collaborative referrals with Xinan Hospital to help Jin Xin create a model for three flagship assisted reproductive plus maternity and child specialist hospitals in the region. The Wuhan business achieved revenue of 16.99 million yuan (-69% yoy) in '22. We are optimistic that with Wuhan Jinxin's follow-up, it is expected to achieve break-even in 2023. Furthermore, two clinics in Yunnan are also expected to gradually become profitable after being renovated.
Greater Bay Area business: The Shenzhen business is expected to resume high growth. The Hong Kong Clinic focuses on a new brand strategy and the Shenzhen region achieved revenue of 348 million yuan (yoy -18%) in '22. We expect a strong return on the revenue side of the region in '23. The main reasons are: 1) the return of first-time patients is good, which is expected to achieve entry transformation; 2) special needs services or continued penetration. Furthermore, we are optimistic that the development of the Shenzhen region will become the company's long-term growth engine. Considering the company's guidance that new properties in Shenzhen are expected to be put into operation in 1Q24, the combined penetration rate of special needs services is expected to impact 20% + in the long term. The Hong Kong region achieved revenue of 59.48 million yuan (yoy +257%) in '22, mainly due to the consolidation of regional business in September '21, which boosted revenue growth in '22. We are optimistic that the Hong Kong region will hit 200 IVF cycles in 23 years, combine exploration of high-value-added business development, and achieve impressive growth within the year.
Overseas business: We are optimistic that the US HRC will set sail in '23, and the Laotian clinic will start generating revenue from overseas business: 1) The profit side of the US HRC achieved revenue of 4.6 billion yuan (yoy +0.7%) in 2022. Mainly due to the impact of increased international patient marketing expenses and personnel costs, considering the return of international patients and the expansion of the doctor team (with the goal of building a team of 25 doctors within the year), we expect HRC's revenue growth rate to impact 30% in 23. 2) The clinic in Laos is officially open, and we are optimistic that its IVF cycle will gradually rise. Furthermore, the company is directing another expansion in the Southeast Asian market within the next 1-2 years.
Risk warning: The acquisition expansion was unsuccessful, and the number of IVF cycles recovered less than expected.