The hospital business is growing steadily, and I am optimistic that the new M&A/Phase II project will drive growth. The company will achieve revenue/net profit/adjusted net profit of 40.77/6.85/713 billion yuan in 2023 (+27.6/42.1/17.5% yoy, +34.0/63.6/ 31.1% yoy after excluding nucleic acid). The steady increase in the company's revenue was mainly due to the company's continued abundance of treatment methods, while the year-on-year growth rate of adjusted net profit was lower than that of the revenue side, mainly because the high-margin nucleic acid business base was high during the same period in '22 plus additional phase II production capacity was still climbing, and the scale effect was not yet prominent. Looking ahead to 24, considering the stable return of the base in 23, the increase in capacity utilization in the second phase of Shanxian/Chongqing, and the increase in mergers and acquisitions in Yixing/Changan/Qufu, we are optimistic that the company's adjusted net profit in '24 will have an impact of 30% year-on-year growth. We expect the adjusted EPS for 2024-2026 to be $1.49/1.86/2.29, and give the company 27 times PE in 24 years (the same as its A-share comparable company's consistent forecast), with a target price of HK$44.21 to maintain a “buy.”
Hospital business: The number of hospitals in stock is developing steadily. Chongqing/Shanxian Phase II is expected to lead the growth of hospital business revenue of 3.89 billion yuan in 2023 (+28.5% yoy, +35.4% after excluding nucleic acid), of which outpatient business revenue +23.1% (+43.2% after excluding nucleic acid) and inpatient business revenue +31.6% yoy. Looking ahead to 2024, we are optimistic that the hospital business will increase by more than 30% year on year (1-2M24 company revenue +40% yoy), considering that among existing hospitals: 1) the revenue of mature hospitals (Longyan/Heze, etc.) maintained an average increase of about 10%; 2) long-term hospitals (Suzhou Yongding, Hezhou Guangji, etc.) quickly returned to the center of revenue growth of 15% or more; 3) Phase II Climbing Hospital of Traditional Chinese Medicine (Chongqing+Danxian): Both hospitals will add 1000/500 beds within 23 years, and are optimistic that the 24-year increase in bed utilization will drive a 30% year-on-year impact on revenue growth. We estimate that the revenue growth of hospitals of the same caliber will impact 20% yoy in 2024, and consider factors such as continued construction of the MDT Oncology Discipline+launch of new equipment.
Newly acquired hospitals: Yixing/Chang'an Hospital incubates excellent incubation, or helps it rise to the next level in 24. We are optimistic that the following new mergers and acquisitions will boost Hygea's profit in 24:1) Yixing Haijia:
Revenue has repeatedly reached new highs (6-12M23 revenue +31% year-on-year), and I am optimistic that the profit margin of a single hospital will gradually climb to the group average. 2) Xi'an Chang'an Hospital (9-12M23 revenue +29% YoY): We are optimistic that the Haijia standardization system will enable the hospital's oncology building+operational efficiency improvement+cost control. The hospital's annual revenue is expected to be +20% yoy, and the net interest rate level is expected to hit nearly 20% (considering financial expenses, it is expected to increase the company's net profit by more than 100 million yuan in 24 years). 3) Qufu Chengdong Hospital: 1M24 officially merged.
New building/Phase II new beds will be launched in an orderly manner, driving long-term steady growth and expansion level: 1) 2024 (1500+ new beds, expected to reach more than 11,000 beds by the end of the year):
Chengwu Phase II, new construction in Texas, and potential mergers and acquisitions. 2) 2025 and beyond (expected to achieve more than 14,000 beds by the end of '25): Phase II/III hospitals built in Wuxi and Changshu, Guangji, Kaiyuan Jiehua, Suzhou Yongding, and Chang'an Hospitals.
Risk warning: Phase II/new hospital opening is slowing down, risk of delays in acquisitions, risks related to health policies.