Key points of investment
Overall FY2024Q1 sales growth was strong, and demand continued to recover after customs clearance. The company issued an FY2024 Q1 (April-June) sales update announcement: FY2024Q1's overall sales reached HK$1,086 billion (+ ≥ 23%); of these, medical service sales increased 18% +, medical and aesthetic services sales in Hong Kong and Macao increased 40% +, sales of medical and aesthetic services in the mainland fell 10% - and sales of other services (mainly veterinary services) increased 4% +. FY2024Q1 sales performance was impressive. In particular, sales in the medical and aesthetic sector in Hong Kong and Macau increased dramatically, mainly due to the continued recovery in demand for Hong Kong and Macau after customs clearance. Since the full resumption of personnel exchanges between the Mainland, Hong Kong and Macao on February 6, 2023, the number of mainland visitors to Hong Kong has surged. The average number of mainland visitors to Hong Kong reached 2.25 million in 4-6, 2023.
The three major service fields of medicine, aesthetics, medicine, and veterinary medicine are the two major development engines of endogenous growth and external mergers and acquisitions. The company started with medical and aesthetic services and rapidly expanded into the medical and veterinary services sector through endogenous growth and external mergers and acquisitions. Among them, the medical services sector achieved revenue of HK$2,542 billion (+50.5%) in FY2023, accounting for 65.6%. Endogenous growth and external mergers and acquisitions act as the dual development engines of the company, driving the continuous growth of the company's performance. In terms of endogenous growth, without considering merger and acquisition contributions, FY2022-FY2023's current business sales increased from HK$1,581 million to HK$2,345 million, with a CAGR of 21.8%. In terms of external mergers and acquisitions, considering only medical and veterinary brands with sales exceeding HK$10 million, the FY2020 M&A portfolio achieved sales of HK$0.43, 0.52 and HK$068 million respectively in FY2021-FY2023, with a CAGR of 25.8%.
The Big Health Closed Loop Ecosystem (TTIPP) continues to power the expansion of corporate mergers and acquisitions. The company has carried out strategic cooperation in the five major fields of technology, telecommunications, insurance, real estate and pharmaceuticals, built a Big Health Closed Loop Ecosystem (TTIPP), and achieved deep integration of the industrial chain with strong resources from partners. FY2023, the company reached a strategic cooperation agreement with Novi Health. The company will support the launch, distribution and promotion of the Hong Kong household cancer screening product CerviClear. In addition, the company cooperates with AXA. The company has set up an AXA Co-Branded Health Management Center in Causeway Bay and an endoscopy center in Central, respectively.
Investment advice: As the largest non-hospital medical group in Hong Kong, the company has brand service advantages. Benefiting from the surge in mainland passenger traffic to Hong Kong after customs clearance, business demand in Hong Kong and Macao continued to recover. Endogenous growth and external mergers and acquisitions serve as the company's two major development engines. Combined with TTIPP, the company's mergers and acquisitions continue to empower the company's M&A expansion, and the company's performance is expected to continue to grow. We forecast the net profit of the company's FY2024-FY2026 to HK$268/341/HK$465 million respectively, with growth rates of 285%/28%/36% respectively, corresponding to PE of 21/16/12 times. First coverage, giving a “buy-B” recommendation.
Risk warning: risk of changes in regulatory policies, risk of increased competition in the industry, risk of mergers and acquisition integration falling short of expectations, risk of new store expansion falling short of expectations, risk of medical and aesthetic accidents, risk of post-customs consumption recovery falling short of expectations, etc.