The company carries on the hospital management business through (I) the company's ownership of the management company Wellcome Investment and Honghe Credit Suisse; and (ii) Young's Hospital and the company (through the contractual arrangement between Wellcome Investment and Honghe Credit Suisse). The relationship between the company and Young Hospital is governed by hospital management agreements, including (I) a six-year hospital management framework agreement from January 1, 2013 to January 1, 2016, (ii) a 51-year letter of intent beginning on January 1, 2014, and (iii) a 10-year long-term hospital management agreement. It supersedes the Hospital Management Framework Agreement on 1 January 2016, and (iv) the one-year hospital management and consultation agreement entered into each year with Young Hospital in accordance with the letter of intent, the Hospital Management Framework Agreement (for 2013, 2014 and 2015) and the long-term Hospital Management Agreement (due to 1 January 2016). In accordance with the Hospital Management Agreement, the company provides management and consulting services to Young's Hospital and charges a management service fee based on the percentage of the annual income of Young's Hospital, which is determined on an annual basis. According to the Hospital Management Agreement, Wellcome Investment (in 2013, 2014, 2015 and the nine months ended September 30, 2016) and Honghe Credit Suisse (in 2015 and the nine months ended September 30, 2016) charge management services equal to a certain percentage of the annual income of Young's Hospital.
The company was incorporated as an exempted limited company in the Cayman Islands on February 21, 2014. Before the acquisition of Wellcome Investment on September 30, 2014, the company had no significant business. Among the former entities of the company, (1) Wellcome Investment provided management and consulting services to Yang Si Hospital (a non-public non-profit general hospital held by Wellcome Investment on January 5, 2007), and (2) Fuhua Hospital (established by an independent third party on October 17, 2007). Wellcome invests in non-public for-profit general hospitals that acquired 100% of its interests on January 15, 2014) to provide general hospital services. The company acquired an 80% stake in Wellcome Investment for a total consideration of RMB 1038.4 million from five independent third parties on September 30, 2014. After the company acquires Wellcome Investment, the former entity is controlled by the company. The Group's performance includes the performance of its predecessor entities since 30 September 2014. After the acquisition of Wellcome Investment, the company restructured its hospital management services business and established Honghe Credit Suisse in December 2014 to provide strategic planning and development of hospital management services. Under a share purchase agreement dated December 25, 2014, five people acquired a 20% stake in subsidiary Hong he Credit Suisse. Honghe Credit Suisse began to provide consulting services to Young Hospital in January 2015. The services provided by Honghe Credit Suisse to Young Hospital are very different from those provided by Wellcome Investment in terms of form and content. Honghe Credit Suisse provides strategic planning and development consulting services to Young Hospital, while Wellcome Investment provides management services related to the day-to-day operation of Young Hospital, focusing on administrative and functional areas.
The company's revenue in 2015 was 143 million yuan, with a net profit of 67.32 million yuan, compared with 115 million yuan in the first three quarters of 2016, with a net profit of 30.77 million yuan.
The guidance price per share is HK $12.80-HK $15.00, which is equivalent to about 35-40 times the price of PE. The valuation is high, so it is recommended to subscribe cautiously.