reviews
Performance grew steadily, and profit margins declined due to nucleic acid testing base, bed expansion, and mergers and acquisitions. In 2023, the company achieved revenue of 4,077 billion yuan (+27.6%), realized net profit of 685 million yuan (+42.1%), achieved adjusted net profit of 713 million yuan (+17.5%), and an adjusted profit margin of 17.5% (-1.5pp). After excluding the one-time impact of nucleic acid testing, adjusted net profit increased 31.1% year over year. The number of company beds grew from around 6,200 to around 9,600 (+55%) in 2022/23. We believe it will take some time for the company's bed production capacity to rise, and it is expected to gradually accelerate in 2024.
On a semi-annual basis, 23H2 achieved revenue of 2,317 billion yuan (+38.8%), realized net profit of 350 million yuan (+38.0%), achieved adjusted net profit of 367 million yuan (+19.8%), and an adjusted profit margin of 15.8% (-2.5pp).
By business split, in 2023, the company's oncology business achieved revenue of 1,778 billion yuan (+23.6%), the non-oncology business achieved 2,298 billion yuan (+30.8%), and the oncology business accounted for 43.6% (-1.4pp). The company's medical technology level continues to improve. In 2023, the Group completed a total of 83,800 surgeries (+34.6%), with the proportion of grade 3 and 4 surgeries and interventional surgeries further increasing.
The three cost rates rose slightly, mainly due to increased administrative and financial expenses due to mergers and acquisitions of new hospitals. The company's gross margin in 2023 was 31.6% (-0.6pp), and the sales expense ratio was 1.2% (+0.4pp), mainly due to increased consulting and professional service fees, marketing and promotion expenses, and employee benefits expenses; the management fee ratio was 10.1% (+0.8pp), and the financial expenses ratio was 0.8% (+0.1pp), mainly due to increased administrative expenses and financial expenses due to new mergers and acquisitions of hospitals.
The merger and acquisition of high-quality hospital targets is expected to drive performance for the full year of 2024. In 2023, the company acquired Yixing Haijia Hospital (May 9), Chang'an Hospital (July 25), and Qufu Chengdong Hospital (November 30). Since the company's acquisition, Yixing Haijia's revenue increased 30.8% year-on-year in June-December 2023; Chang'an Hospital's revenue increased 28.9% year-on-year in September-December 2023. According to the announcement, the company's revenue increased by more than 40% year-on-year in January-January 2024.
Profit forecast and valuation: We expect the company's revenue for 24-25 to be $57.21/6.795 billion, up 40.3%/18.8% year on year, and adjusted net profit of $913/1,098 million, up 28.0%/20.3% year on year. We believe that as one of the leaders in private medical services, Hygea has outstanding discipline construction and management capabilities, and continues to fulfill its ability to integrate mergers and acquisitions. Considering the company's production capacity climbing pace and capital expenditure impact, we maintain the current target price of HKD68.97, corresponding to 52x/43xPE in 24/25, maintaining a “superior to market” rating. We recommend that you pay attention.
risks
Risks such as health service policy risks, second-phase production capacity climbing or acquisition consolidation falling short of expectations.