Hygeia Health announced 2023 revenue of Rmb4.08bn (+28% YoY), and net profit of Rmb683m (+43% YoY). Its adjusted net profit reached Rmb713m (+18% YoY). Excluding the one-off impact of the nucleic acid tests, its revenue increased 34% YoY and adjusted net profit increased 31% YoY, in line with our expectation. Its blended gross margin decreased 0.63ppts YoY to 31.6% in 2023, with gross profit of hospital business of 30.3% (vs 30.7% in 2022). Considering the ramp up of new hospitals and acquired hospitals (Yixing and Chang'an), we lower EPS forecast from Rmb1.61 to Rmb1.45 (+28% YoY) in 24E, from Rmb2.02 to Rmb1.83 (+26% YoY) in 25E and forecast Rmb2.24 (+23% YoY) in 26E. We lower our target price from HK$71.0 to HK$43.0. With 63% upside, we maintain our BUY rating.
Solid performance of hospital business. Revenue of hospital business reached Rmb3.9bn (+29% YoY), excluding the one-off impact of the nucleic acid tests, which increased 35% YoY, representing 95% of its total revenue in 2023. The revenue from outpatient service grew 23% YoY (excluding the one-off impact of the nucleic acid tests +43% YoY) to Rmb1.4bn in 2023. In addition, revenue from inpatient service increased 32% YoY to Rmb2.5bn in 2023. In terms of the revenue by therapeutics, revenue from the oncology sector reached Rmb1.8bn (+24% YoY), representing 44% of its total revenue in 2023 while revenue of non-oncology business reached Rmb2.3bn (+31% YoY). In addition, the total number of surgeries reached 83,770 (+35% YoY) in 2023.
Improving operating efficiency of the acquired assets. The company announced the acquisition of 89.2% equity interests of Yixing Hospital in May 2023 and 100% equity interests of Chang'an Hospital in July 2023. The consolidation of Yixing Hospital and Chang'an Hospital was from June and September of 2023, with the number of available beds of 500 and 1,100, respectively. In addition, the phase III project of Chang'an Hospital has initiated preparation works, which plans to add 1,000 beds. Revenue of Yixing Hospital and Chang'an Hospital increased 31% YoY and 29% YoY, respectively from June to December of 2023. We expect synergies between the acquired hospital and its existing hospitals network, such as supply chain and physicians, etc. Thus, we expect the improving operating efficiency of the acquired hospitals under the company's management.
Continuous business expansion with rising number of hospital beds. Now, the company mainly operates 16 oncology-focused hospitals, with four Class III general hospitals (Chang'an, Guangji, Dezhou, and Chongqing). As of end-2023, the total number of beds of the company's existing hospital network reached c.9,600. With the expansion of new hospitals (Dezhou, Wuxi and Changshu), phase II projects of existing hospitals (Guangji, Kaiyuan, etc), and M&As, the company expects its total number of available beds to reach over 14k by the end of 2025E.
Maintain BUY. Considering the ramp up of new hospitals and acquired hospitals (Yixing and Chang'an), we lower EPS forecast from Rmb1.61 to Rmb1.45 (+28% YoY) in 24E, from Rmb2.02 to Rmb1.83 (+26% YoY) in 25E and forecast Rmb2.24 (+23% YoY) in 26E. We lower our target price from HK$71.0 to HK$43.0. With 63% upside, we maintain our BUY rating.
Risks. Regulatory price control over medical services; lower-than-expected synergies of M&As targets after being acquired by Hygeia.