Beijing's leading private pediatric service provider. The company operates three medical institutions under the brand "New Century Medical" (Beijing New Century Children's Hospital, Beijing New Century Women's and Children's Hospital, Beijing New Century Ronghe outpatient Department). According to the market share in 2015, the company's pediatric business ranks first in Beijing's private pediatric market and the middle and high-end pediatric market, with a market share of 30.4% and 36.5%, respectively.

The company's medical service is mainly composed of pediatrics and obstetrics and gynaecology, and the two businesses assist each other. The Ronghe outpatient department provides general paediatrics and obstetrics and gynecology outpatient services. if patients need more professional services, they can be transferred to Beijing New Century Children's Hospital or Beijing New Century Women and Children Hospital. The internal referral mechanism improves the synergy between the company's hospitals and clinics.

The income growth in 2016 comes from the income of Beijing Women's and Children's Hospital in the new century. The company's revenue in 2016 increased by 91.4% to 490 million yuan compared with the same period last year, of which the contribution income of Beijing New Century Children's Hospital increased by 16.4% to 270 million yuan. Due to the consolidation of annual income, the contribution income of Beijing New Century Women's and Children's Hospital increased 15.3 times to 180 million yuan. The company's gross profit margin fell 4.9 percentage points to 49.5% in 2016 due to an increase in the share of income in women's and children's hospitals with lower gross margins in the new century. In addition, the company's net profit increased 1.4 times to 98.63 million yuan.

Beijing New Century Children's Hospital is expected to grow steadily in the future. The company's children's hospital has been in operation for more than 10 years, and its business model has matured. We believe that the growth potential of the company's children's hospital is limited. According to the company's management, the children's hospital recorded a 16.4% increase in revenue in 2016, mainly due to the company's integration and redistribution of internal resources. The peak period of hospitalization in children's hospital is in summer, while the peak of outpatient service is in autumn and winter. During the off-season of hospitalization, the company converts some inpatient wards into outpatient wards, which increases the utilization rate of wards and increases income. However, this adjustment is difficult to support the income of children's hospitals to continue to rise. In addition, the gross profit margin of the children's hospital decreased from 59.1% in 2014 to 56.5% in 2015, mainly due to the increase in the salary and bonus of doctors, and the gross profit margin of the children's hospital tended to stabilize in 2016.

It is expected that the growth of Beijing Women's and Children's Hospital in the new century will come from the increase in bed utilization. The company acquired Beijing New Century Women's and Children's Hospital in November 2015. The Women's and Children's Hospital recorded an income of 180 million yuan in 2016, of which inpatient and outpatient income increased by 127% and 48.7% respectively. According to management, the increase in income at women's and children's hospitals is mainly due to the increase in the number of births in 2016 (the two-child policy and zodiac preference superimposed baby boomers) and an increase in pediatric patients. At present, the bed utilization rate of the women's and children's hospital is between 45% and 50%. Due to the gradual maturity of the operation and the continuation of the two-child policy, the utilization rate of material beds will continue to grow.

Growth potential depends on future expansion plans. We believe that the company will make every effort to build pediatric medical services in the future, and the gynecological business will be used to assist the development of pediatric business. The company will acquire or build more hospitals for women and children in the future.

Recently, the company has been looking for acquisition targets for women's and children's hospitals in second-tier cities, while the company has selected sites for new hospital projects in first-tier cities. The project cycle of the new hospital is usually 18 months, and it is expected that the new hospital will be put into operation as early as 2019. In addition to its core business, the company also provides hospital consulting services to Jiahua Likang (a related party of the company, which operates a number of women's and children's hospitals outside Beijing). In view of the fact that the company has the pre-emptive right to buy Jiahua Likang hospital, the company will consider buying Jiahua Likang hospital in the future if the cash flow of the hospital is close to or reaches the equilibrium period.

The company's current valuation is reasonable. New Century Healthcare is currently valued at 27 times forecast earnings in 2017, slightly higher than the average price-to-earnings ratio of Hong Kong-listed medical services, according to Bloomberg. Based on the company's general pediatric services and established pediatric brand image, we believe that the company has the potential to become a leader in private paediatric services in China in the future. As the company's future growth depends on the progress of future hospital expansion, we believe that the progress announcement on the acquisition or construction of new hospitals will be a catalyst for the company's share price to rise.