Performance review
Lower-than-expected performance in 2018
New Century Medical released 2018 results: revenue increased 14.8% year-on-year to 616 million yuan, return to the mother net profit of 42 million yuan (0.08 yuan per share), down 43.5% from the same period last year. As the new clinic is still losing money, the performance is lower than expected.
Trend of development
Steady endogenous growth. Excluding Chengdu Hospital and other newly acquired Beijing institutions, the company's adjusted net profit was 132 million yuan, up 15.0% from a year earlier, while adjusted EBITDA profit rose 13.6% to 195 million yuan.
The number of pediatric outpatients and surgeries maintained a steady growth, while the number of outpatients and surgeries in obstetrics and gynecology increased rapidly. In 2018, 210070 new outpatients were added, an increase of 4.7% over the same period last year, mainly due to the contribution of new outpatient visits. Among them, the number of pediatric outpatients was 198003, an increase of 10.9 percent over the same period last year, and 7401 hospitalizations, an increase of 9.8 percent over the same period last year. The number of outpatients in obstetrics and gynecology was 33783, an increase of 53.4% over the same period last year, and the number of hospitalizations was 2329, an increase of 38.0% over the same period last year.
From August to December 2018, Chengdu Hospital contributed 39.3 million yuan in income, including 14.1 million yuan in pediatric services and 24.1 million yuan in obstetrics and gynaecology services.
In 2018, the gross profit margin was 38.6%, down 9.5 percentage points from the same period last year. The profit of EBIT and the gross profit margin of EBIT for children's services were 127.5 million yuan and 27.3% respectively, down 21.4% and 12.0% respectively from the same period last year, mainly because the new clinic was still losing money.
Profit forecast
We lowered our earnings per share forecast for 2019 by 16% to 0.14 yuan, and introduced a profit forecast of 0.15 yuan for 2020 for the first time, corresponding to an increase of 60% and 11% respectively over the same period last year.
Valuation and suggestion
The company's current share price corresponds to 36 times and 33 times earnings from 2019 to 2020. Maintain a neutral rating. Cut the target price by 29 per cent to HK $5.70, corresponding to 36 times 2019-2020 and 33 times earnings, with 2 per cent upside compared with current share prices.
Risk.
The market of pediatrics and obstetrics and gynecology care is highly competitive; the expansion is lower than expected; and the operating expenditure is increasing.