Matters:
On July 10, the company announced that the holding subsidiary Yunnan Yixintang Kangdun Health Management Co., Ltd. plans to cooperate with Elken Guobin to establish Yunnan Elken Guobin Health Management Co., Ltd., with a registered capital of 50 million yuan, of which Yixintang Kangdun plans to invest RMB 22 million with its own capital, accounting for 44% of the registered capital.
Guoxin's opinion:
It is expected to explore new medical examination services and enhance chronic disease management service capabilities
Elken Guobin is the second-largest private medical examination company in China. It has 110 internal stores. It has previously announced that it will accept Ali's privatization offer. Elcon Guobin's 2017 revenue was US$564 million, up 29.43% year over year. On March 27, 2018, Elcon Guobin announced that it signed a final agreement and merger plan with IK Healthcare InvestmentLimited (parent company), Yunfeng Fund and Alibaba. The parent company will be purchased in cash at a price of $41.20 per Class A or Class C common share or $20.60 per ADS share. Each ADS share corresponds to 0.5 Class A common stock. The purchase price was 15% higher than the closing price of Elcon Guobin ADS stock of $17.92 on March 9, 2018. It is expected that the merger deal will be completed in Q3 2018. and Elcon Guobin will be delisted from the US stock market and become a privately held company.
Yixintang's Yunnan store has a dense layout and a high market share. This cooperation with Elken can expand new fields of business and expand market space. In 2017, Yixintang Yunnan's parent company had revenue of 5.702 billion (+24.03%) and net profit of 295 million (+ 19.48%), accounting for about 60% in Yunnan. The endogenous growth rate was stable at 15%, and it has fully penetrated the county-level market.
Deeply cooperate with Alibaba to achieve two-way diversion and build a “new retail” model for pharmaceuticals
Yishintang has previously cooperated with Ali Health Department to promote the Internet pharmaceutical integrated platform business. On August 29, 2017, Yixintang announced a joint investment with Alibaba Health's Hongyun Jiukang Data Technology (Beijing) Co., Ltd. and Beijing Jiahe Meikang Information Technology Co., Ltd. to establish Yunnan Jiukang Yixin Information Technology Service Co., Ltd., which accounted for 40%, 40% and 20% of the shares respectively, mainly to promote and develop an integrated Internet pharmaceutical platform business in Yunnan. In February 2018, the Food and Drug Administration issued the “Measures for Supervision and Administration of Online Drug Sales (Draft for Comments)”, which strengthened supervision and encouraged models such as “online order collection and online order delivery” to further promote the outflow of prescriptions.
The number of medical examinations carried out by Elken Guobin in 2017 was about 6 million, while Yixintang has 15 million active members, accounting for 77.9% of member consumption. Pharmacies and medical examinations are both traffic entrances. Cooperation between the two parties can be diverted in both directions. Professional pharmaceutical services such as health consultation, medication guidance, data testing, and auxiliary diagnosis centered on consumer experience will also spawn more “new retail” models.
Investment advice: It is predicted that the company's EPS in 2018-2020 will be 0.88/1.09/1.35 yuan respectively, an increase of 25%/23%/24% over the previous year. The current stock price corresponding to PE is 36/30/24X respectively. The company has gone through a painful period of rapid expansion, and the Sichuan and Chongqing regions have begun to make profits. Currently, it is the least valued and most cost-effective target among retail pharmacy chains, maintaining a “buy” rating.