Event: Company Announces 2023 Results
reviews
The results were generally in line with expectations. In 2023, the company achieved revenue of 2,789 billion yuan (+18.0%). The increase was mainly due to 1) the gradual restoration of the number of domestic patients, special needs services and other value-added services after the epidemic; 2) the gradual recovery of the number of international patients; and 3) the consolidation of Jiuzhou Hospital and Wanjia Hospital throughout the year. In 2023, the company achieved net profit of approximately $347 million (+194.2%), the net interest rate recovered to 12.4% (+7.2pp), and adjusted net profit was approximately $472 million (+72.0%).
Split by service type, in 2023, the company 1) revenue from assisted reproductive services was 1,336 million yuan (+26.7%); 2) revenue from management services was 566 million yuan (+12.5%); 3) revenue from ancillary medical services was 310 million yuan (+36.6%); 4) revenue from maternal and child business and sales of pharmaceuticals, consumables and equipment was 577 million yuan (-0.6%).
Gross margin increased significantly due to the gradual recovery of domestic and foreign business. The company's gross margin in 2023 was 42.1% (+5.2pp), mainly due to the recovery of domestic and foreign business, and the results achieved in controlling the cost of pharmaceuticals and consumables and improving operational efficiency; the sales and management expenses ratio was 24.1% (-1.7pp), mainly due to the adoption of more effective marketing methods after the merger of Kyushu Hospital and Hewanjia Hospital, such as recruiting well-known doctors; and the R&D cost ratio was 0.8% (flat).
Build a comprehensive IVF and obstetrics service model, and obtain the third-generation IVF technology core license and molecular genetic service license. In July 2023, Sichuan Jinxin Xinan Hospital (Bisheng Campus) was qualified for PGT trial operation. In January 2023, Sichuan Jinxin Xinan Hospital (Jingxiu Campus) was qualified to provide molecular genetic services. It is the only private medical institution in Sichuan Province that has obtained this license.
The egg freezing business in Hong Kong opened up room for growth, and the US business gradually resumed. In 2023, the two medical institutions acquired by the company in Hong Kong, the Hong Kong Fertility Health Centre and the Hong Kong Assisted Reproduction Centre, actively promoted egg freezing medical services. The number of egg freezes increased 145% over the same period in 2022.
According to the announcement, in 2023, the number of international patients in the company has recovered to about 50% of pre-epidemic levels. HRC Medical continues to recruit new doctors to expand the company's market share in the US ARS industry.
Profit forecast and valuation: We believe that the assisted reproduction market in China has broad prospects. With the increase in the number of elderly mothers in China and the gradual advancement of measures such as active childbearing encouragement policies and inclusion in health insurance, the boom in China's ARS industry is expected to pick up. Up to now, Beijing, Guangxi, Gansu, and Inner Mongolia have included ARS treatment in medical insurance in July 2023, November 2023, February 2024, and February 2024, respectively. Considering the company's post-pandemic recovery growth trend and regional business progress, we expect the company's revenue to be 32.09/3.695 billion yuan in 24-25, up 15.1%/15.1% year on year (previous value was 33.82/391 billion yuan. The reduction was mainly due to lower than expected recovery of domestic and foreign business, and the postponement of the commissioning of the new Shenzhen Zhongshan Hospital property until 2025). The adjusted net profit is 544/625 million yuan, up 15.5%/14.8% year on year (previous value was 554/613 million yuan, same as before). According to comparable companies, we believe that the company's license and service advantages are outstanding. Maintaining a target price of HKD5.35, corresponding to 25x/22xPE in 24-25, maintaining a “superior to the market” rating, we recommend that you pay attention.
Risks: Policy implementation falls short of expectations, interest rate and exchange rate risks, medical malpractice risks, risks of falling short of expectations, etc.