2023 results are in line with our expectations
Hygea Healthcare announced 2023 results: revenue of 4,077 billion yuan, +27.6% YoY (+34.0% YoY after excluding the one-time impact of nucleic acid testing); adjusted net profit of 713 million yuan, +17.5% YoY (+31.1% YoY after excluding the one-time impact of nucleic acid testing); full-year results are in line with our expectations.
Development trends
The core medical service capacity continues to improve, and the good momentum continued at the beginning of this year. 1) The company's core business continued to grow steadily: in 2023, the company's hospital business achieved healthy growth, with revenue of 3.89 billion yuan, +35.4% year-on-year after excluding the one-time impact of nucleic acid testing, including inpatient revenue of 2,539 billion yuan and outpatient revenue of 1,351 billion yuan; the total number of surgeries increased 34.6% year-on-year to 83,800, mainly benefiting from the expansion of the company's service scale, improvement of tumor MDT capabilities, and continuous introduction of technology, talents and equipment; 2) Oncology specialist capabilities continued to improve, and high-quality medical team building gradually matured: 2023 The company continues to strengthen MDT construction and multidisciplinary diagnosis and treatment capabilities. Tumor-related business revenue was 1,778 billion yuan, an increase of 23.6% over the previous year. By the end of 2023, the Group had 7,483 medical professionals, an increase of 46.0% year on year; of these, 1,188 were senior professional and technical personnel, an increase of 47.0% year on year. 3) The good trend has continued since this year. According to the company's announcement, revenue increased by more than 40% year-on-year in January-January '24.
Endogenous and expansionary growth momentum has increased, and epitaxial mergers and acquisitions continue to improve the medical network. As of March 2024, the company operated or managed 16 hospitals (including 4 level-III hospitals and 12 level-II hospitals). 1) Phase II of the existing hospital accelerated climbing: In February and July '23, Haijia Phase II in Chongqing and Shanxian County were added, with a total of 1,500 new beds. We believe that the second phase of climbing is expected to bring new growth impetus to mature hospitals; 2) Mergers and acquisitions in multiple cities and rapid operational improvements: the company announced the acquisition of Yixing Haijia and Xi'an Chang'an Hospital respectively in May and July '23. The revenue growth of the two hospitals reached 30.8% and 28.8% year-on-year, respectively; in November 23, we announced the acquisition of Qucheng Fudong Cancer Hospital. It is expected that future epitaxial sharing will have considerable room for revenue and profit growth; 3) Subsequent hospital pipelines are abundant: Chengwu Phase II was put into operation in January 24, and Dezhou Haijia passed the tertiary general hospital inspection in March; the company expects new hospitals in Wuxi and Changshu to complete phase II projects in Hezhou Guangji, Kaiyuan Kaihua, Suzhou Yongding, and Xi'an Chang'an.
Under a mature management model, the company's operating indicators are expected to rise steadily. In 2023, the company's overall gross profit margin was 31.6%, down 0.6ppt year on year, and the adjusted net profit margin was 17.5%, mainly affected by one-time nucleic acid testing; ROE reached 12.24%, up 2.0ppt year on year. We believe that with the gradual adjustment of the company's discipline structure, the continuous empowerment of standardized management, and the integration of mergers and acquisitions, the profit side is expected to continue to be optimized in the future.
Profit forecasting and valuation
The 2024-25 EPS forecast remains unchanged at 1.40 yuan and 1.78 yuan. The current price is 16.7x and 12.5x corresponding to the 2024-25 P/E. Maintaining an outperforming industry rating and target price of HK$39.6, corresponding to the 2024-25 P/E is 25.0x and 18.8x, with 50.6% upside compared to the latest closing price.
risks
Hospital expansion and profitability falling short of expectations; changes in health insurance policies; risk of medical emergencies.