Matters:
The company released its 2023 mid-year report, achieving revenue of 1,334 million yuan (+17.2%); net profit of 2.24 billion yuan (+19.3%); and adjusted net profit of 255 million yuan (-1.2%). The company's growth rate was in line with expectations.
Ping An's point of view:
Multiple hospitals achieved steady growth: 2023H1, the company's IVF egg retrieval cycles were 14,731, an increase of 14% over the previous year, achieving steady growth. In the first half of 2023, many regional branches of the company had good performance and breakthroughs. Among them, overall surgery in Chengdu was 687 million yuan (-2.0%). Although there was a slight decline, the Bisheng Campus of Jinxin Xilong Women and Children's Hospital obtained third-generation IVF qualifications to prepare for future growth; the Shenzhen hospital achieved revenue of 188 million yuan (+13.8%), and revenue is expected to accelerate with the introduction and use of new properties in the future; the Kunming region achieved revenue of 123 million yuan in the first half of the year; the Wuhan campus reopened in September last year, achieving revenue of 16.61 million yuan (+152.0%); Hong Kong achieved revenue of 30.47 million yuan (+16.1 million yuan) %); International business in the US region quickly recovered, achieving revenue of 288 million yuan (+21.0%).
Assisted reproduction programs are included in Beijing's medical insurance, and other regions may follow suit: Starting July 1, 16 therapeutic assisted reproductive technology projects will be covered by Beijing's basic medical insurance. Reimbursement items include tests to promote ovulation, preferential treatment of sperm, and recovery of frozen embryos. Currently, the average cost of a single cycle of IVF in China is about 35,000 to 45,000 (not including three generations). This time, medical insurance covers about 8,000-11,000 yuan. Incorporating assisted reproduction into health insurance will further improve the accessibility of services. If other regions follow suit, it will drive rapid growth in the industry, and leading enterprise Jinxin Reproduction will benefit from it.
The assisted reproduction business is the core, creating full-cycle maternity services: In November 2021, the company acquired Jinxin's maternal and child business to create integrated fertility services centered on assisted reproduction. Through this merger and acquisition, Chengdu Xiyi and Jinxin Women and Children have deepened business collaboration. Patients with IVF and obstetrics and gynecology are referred to each other, and customer acquisition efficiency is higher. The creation of a full-cycle maternity service reduces the company's customer acquisition costs and realizes resource sharing within different hospitals, thereby reducing costs and favoring the long-term development of the company.
Maintaining “recommended” ratings: The assisted reproduction industry has entered a rapid development path in recent years and is in a stage of accelerated growth. The company is the leading private sector target in China's assisted reproductive services industry. Endogenous growth momentum is strong, and epitaxial mergers and acquisitions are being carried out in an orderly manner. The company has business distribution in Sichuan, Shenzhen, Wuhan, California and Laos, and is at the forefront of the industry in both China and the US. We adjusted the company's profit forecast (the company's net profit for 2023-2025 was 478 million yuan, 638 million yuan, and 813 million yuan). The company's net profit for 2023-2025 is expected to be 368 million yuan, 489 million yuan, and 649 million yuan. Considering the company's long-term development, we maintain the “recommended” rating.
Risk warning: Interest rate risk - The company's business involves the US and Laos, and is sensitive to the current exchange rate, and exchange rate fluctuations have an impact on the company's net profit; risk of the spread of infectious diseases - the spread of infectious diseases affects the company's normal diagnosis and treatment, thereby affecting the company's performance; risk of doctor-patient disputes - the company's business is mainly medical services. If a doctor-patient dispute occurs, it may have a short-term impact on the company's reputation, thereby affecting the company's business.