Rely on the parent company of a central enterprise to build a whole medical and health industry chain group

General Global Healthcare Group Co., Ltd. is a diversified medical and health enterprise focusing on China's rapidly developing big health industry. It was listed in Hong Kong in 2015. Its largest shareholder is China General Technology (Group) Holdings Limited. It is a key national enterprise directly managed by the central government. It is one of the three central enterprises whose main business is medical and health approved by the National Assets Administration Commission. It is also “Fortune”

The world's top 500 companies. The company has continuously expanded its resources in the medical industry in recent years, gradually establishing an integrated development strategy for the medical and health industry with medical services as the core and simultaneously developing medical finance, medical technology services, medical informatization, medical integration and medical health insurance. The company's business involves two major segments. Among them, the financial and consulting segment includes business such as loan leasing, consulting services (industry, equipment and loan consulting and department upgrade consulting), and medical equipment sales, while the hospital group segment includes integrated medical services and hospital operation management services.

In the first three quarters of 2019, the company's performance maintained steady growth. Among them, operating revenue was 4.996 billion yuan, an increase of 53.28% over the previous year, and profit during the period was 1,437 billion yuan, an increase of 22.71% over the same period last year. Shareholders' profit also increased by more than 10% compared to the same period last year. In terms of financial and consulting services, the net interest spread and net profit margin increased compared to last year. The non-performing asset ratio was also relatively stable, and the funding coverage rate remained at a stable level. In terms of hospital group business, the company continued to promote the separation and acceptance of medical institutions operated by state-owned enterprises, and at the same time actively carried out the integrated management of cooperative medical institutions to gradually establish a national medical service network.

The integration of hospitals and hospitals in state-owned enterprises progressed smoothly. In August 2017, six departments including the National Assets Administration Commission jointly issued the “Guiding Opinions on Deepening Reform of State-owned Enterprise Office Education and Medical Care Institutions”, which required basic completion of the reform of state-owned enterprise medical institutions by the end of 2018 and proposed support for state-owned enterprises whose main business is the health industry to integrate resources into the medical institutions of state-owned enterprises. Since then, the company has participated in the divestment of hospitals operated by national enterprises through joint ventures and open market delisting. By the end of 2019, the company had completed contracts with nearly 50 medical institutions through the form of equity control. The total number of open beds was estimated to exceed 14,000. It is estimated that the total number of open beds exceeded 14,000. It is expected that the work of most hospitals will be completed in 2020. In addition, as of the first half of 2019, the company completed the delivery of 16 medical institutions. The average single bed income of hospitals was 230,000 yuan (460,000 yuan per year), and the average outpatient expenses and average hospitalization expenses were 259 yuan and 9,225 yuan respectively. The company's management predicts that the total number of open beds will reach about 30,000 in the next 3 to 5 years, and the revenue share of the hospital group sector will reach more than 50%.

In December 2019, the company increased its capital to Yangmei Hospital Management Company, a subsidiary of Yangquan Coal Industry, and became the controlling shareholder of the company, holding 51% of the shares.

Yangmei Hospital Management Company is the organizer of 4 target hospitals. The target hospital is located in Yangquan City, Shanxi Province. It is a non-profit corporation with more than 2,100 open beds. The total profit breakdown for 2017 and 2018 was 63.13 million yuan and 13.57 million yuan. As of October 30, 2019, the book asset value was approximately 362 million yuan. Among them, Yangquan Coal Industry General Hospital is a Class III comprehensive hospital with 1,155 open beds. The hospital's financial performance is good, and it has competitive advantages in terms of scale, reputation, geographical location and financial situation.

The medical finance business continues to grow, and the quality of assets remains good

The company realized interest income of 1,883 billion yuan in the first half of 2019, an increase of 26.2% over the previous year. The company continues to maintain its leading position in the medical loan rental market. The medical industry realized interest income of 1,468 million yuan, accounting for 77.5%. The net interest spread on loans and rents in the first half of 2019 was 4.28%, up 0.02 percentage points from the previous year; the net profit spread was 3.45%, up 0.12 percentage points from the previous year, continuing to maintain the excellent level of the industry. As of the third quarter of 2019, the company's total assets were 53.692 billion yuan, an increase of 15.0% over the previous year, maintaining steady growth. The loan and rent business coverage rate in the first half of 2019 was 190.27%, up 0.03 percentage points from the end of 2018. The non-performing assets ratio was 0.80%, a slight decrease of 0.01 percentage points from the end of 2018.

Suggest to refocus shares and give them a “buy” rating

We are optimistic about the company's future further integration of medical resources and cooperative development of the industry chain, and the steady increase in revenue and asset scale, and maintaining a better level of profitability and asset quality. We are optimistic about the company's future further integration of medical resources and cooperative development of the industry chain, and suggest refocusing on shares.

We used SOTP for valuation and adjusted the target price to HK$6.91, taking into account the impact between the company's main business operations. For FY19/FY20/FY21 8.33x/6.54x/5.61x PE, there was a +26.48% increase compared to the current price (HKD 5.46 as of February 18, 2020), giving a “buy” rating.