The leading ophthalmology service provider in Hong Kong and Shenzhen gradually entered the mainland market company in January 2012. After 6 years of rapid development, it has become one of the leading ophthalmology specialist service providers in Hong Kong and Shenzhen. Currently, the company has 2 ophthalmology centers in Hong Kong, 5 satellite clinics, and 1 eye hospital each in Shenzhen and Beijing. In 2017, the company achieved revenue of HK$312 million (+25.2%) and adjusted net profit of HK$64 million, an increase of 37.1% over the previous year. The compound annual growth rate of the company's operating income in 2014-2017 was 26%, and the compound annual growth rate of net profit reached 42.2%, showing high growth potential. In 2017, the company's business revenue in Hong Kong accounted for 61% of the company's total revenue, and the mainland business revenue accounted for 39%. In 2013, the first eye hospital, Shenzhen Himalin Shunchao Eye Hospital, opened in Shenzhen. Since then, the layout of mainland China began. In March 2018, Beijing Himalin Shunchao Eye Hospital opened, and the company's business in mainland China has taken its business to the next level.
The volume and price of surgeries have risen sharply, and overall profitability is strong
In terms of the number of surgeries performed: In 2017, the company performed a total of 7070 surgical projects, an increase of 1,278 cases over 2016, of which 3865 were performed in mainland China, an increase of 41.6% over the previous year. Judging from the average cost of surgery: The average cost of surgery in Hong Kong in 2017 was HK$38,649, an increase of 10% over the previous year. The average cost of surgery in mainland China was HK$13,886, which is relatively stable. Overall, the sharp rise in volume and price is expected to bring more profit to the company. In terms of profitability, the company's net sales margin in 2017 was 12.8% and gross sales margin was 43.5%, of which the gross margin in Hong Kong was 35.2% and the gross margin in mainland China was 56.4%. In the future, as the brand effect strengthened, revenue, expenses, and operating efficiency increased, gross margin is expected to increase further. Overall, the company has strong profitability.
The market space for ophthalmology services is large, and the company's market share is expected to increase further. Under the influence of the aging rate of the population, the increase in medical expenses, and the increase in consumer consumption levels and health awareness, the demand for specialist medical services is expected to increase further, and private ophthalmology hospitals are one of the fastest growing projects. According to Frost & Sullivan's analysis report, the market size of Hong Kong's private eye hospital services was HK$3.455 billion in 2016, and is expected to reach HK$4.844 billion in 2021, with a compound annual growth rate of 5.4% in 2016-2021; while China's private ophthalmology services market in 2016 was $14.1 billion (RMB) and is expected to be RMB 32.8 billion (RMB) in 2021, with a compound growth rate of 18.4% in 2016-2021. The market size has steadily increased.
The company's market shares in the field of ophthalmology services in Hong Kong and Shenzhen are 4.7% and 5.4% respectively (the market share of private eye disease treatment services in Guangdong is 8.7%), ranking in the top three in the industry and has strong competitive strength. At the same time, with the continuous deepening of business in mainland China, the increase in the reputation and business volume of Shenzhen Xima Eye Hospital, and the opening and operation of Beijing Hima, the company's future market share is expected to increase further.
Valuation and Ratings
The company has strong competitive strength in Hong Kong and Guangdong. As the operation of Shenzhen Hima Eye Hospital gradually matures, its revenue and number of patients have increased rapidly. In the future, as Beijing Hima Ophthalmology's operations gradually mature, we believe that the company's business in mainland China is expected to drive an increase in performance.
The compound growth rate of the company's net profit in 2014-2017 was 42.75%, higher than that of medical service companies of the same type, and higher than Aier Ophthalmology, a leading domestic ophthalmology company. The company was established in a relatively short period of time. By providing relatively high-end services, differentiated competition was formed, and the company's future growth was optimistic. Net profit attributable to the mother for 2018-2020 is estimated to be HK$0.91/1.26/168 million HK$168 million, and the corresponding EPS is HK$0.09/0.12/0.16 per share. The company is committed to building ophthalmology service medical institutions with international services. Customers have stronger spending power. They have shown stronger growth compared to companies of the same type. It gave 2018 PEG 2.7, PE 97.2 times, and a target price of HK$8.59. Considering that the increase in the company's stock price since the company went public is nearly 4 times the issue price, it was covered for the first time and given a “hold” rating.
Risk warning: risk of brain drain, risk of medical accident, risk of mainland market development falling short of expectations, increased market competition, policy risk, risk caused by differences in valuation systems of A-share companies.