The Hong Kong stock market is filled with chaos, and the plot of value destruction has always existed. Some listed companies have a good business foundation, but due to various factors, whether it is internal struggles of the management or wrong guidance of the operators, it is easy to make the development of the enterprise become confusing.

Recently, a company with a strong sense of drama has attracted attention by staging a series of incomprehensible "dramas", which has caused a lot of public opinion in the market. The market capitalization of town health medical group (3886.HK) has fallen all the way from HKD 16 billion in 2015 to less than HKD 2 billion today.

(Source: Futu Market)

So, what exactly has caused the stock price of Town Health International Medical Group to plummet like this? Where will this company go in the future?

1. China Life Insurance's entry into the market should have been a promising prospect, so why is it now in a mess?

Town Health International is a Hong Kong local old medical institution, which was founded more than 30 years ago and was listed on the Growth Enterprise Market of Hong Kong stock exchange as the first medical group to directly list chain clinics in 2000.

The company has one of the largest and most extensive network of medical services in Hong Kong, and as its business in Hong Kong continues to expand, it also expands into the mainland by means of joint ventures. As of the end of 2023, it has 419 medical service points covering multiple subjects and a total of 780 doctors, dentists, and auxiliary service personnel.

As early as 2015, Town Health International brought in China Life Insurance Group as a strategic investor. With the high-quality resources and brand endorsement of China Life Insurance, Town Health International has accelerated its layout in the mainland and made good progress.

Handing Over Authority to China Life

However, just as everyone was looking forward to Town Health International's continued expansion in both places with the help of China Life's resources, China Life suddenly appeared to have thrown in the towel, and a series of "miraculous" operations by the management of Town Health International made the investors dumbfounded.

Reportedly in January 2024, China Life Insurance Group proposed to convene an extraordinary general meeting of shareholders to restructure the board of directors of Town Health International together with Hong Kong's "toy king" Joseph Lau. The two sides will evenly split the seats on the board of directors, and all of the company's management rights will be handed over to the Lau family.

As a result, Joseph Lau's son, Lau Kar-yan, was appointed chairman of the board of directors of Town Health and also served as CEO. However, Lau Kar-yan, with the halo of a "rich second generation", according to the introduction given in the company's announcement, had no prior experience in the medical industry and was involved in fields such as toys, clocks, and auto repair. The announcement also showed that the employment contract between Town Health International and Lau Kar-yan had an annual salary of up to HKD 5.4 million.

(Source: Company Announcement)

In addition, according to a previous report by Sing Tao Daily, board member Li Wai-ling is still the sister of Joseph Lau's wife. Liu Shuqing had previously worked as personal assistant to Joseph Lau's company Xuri International chairman.

Under the management of the China Life team, Town Health International was originally on a good development trend, and even achieved counter-trend expansion during the epidemic.

The financial report shows that in 2021 and 2022, the company recorded operating revenues of approximately HKD 1.48 billion and HKD 1.536 billion, and net income attributable to owners of the company was HKD 22.01 million and HKD 15.289 million, respectively.

It is worth mentioning that in 2022, Town Health International spent HKD 0.47 billion to acquire a controlling stake in Miduo Medical Holding Co., Ltd., and Miduo achieved a net profit of approximately HKD 23.5 million for the full year of 2023, contributing more than one-third of the profit to Town Health International.

Changes in Management

However, Town Health International, which should have been gradually improving under the leadership of China Life, encountered multiple management changes in 2023. As a result, it began to incur losses, with a loss attributable to owners of the company of HKD 0.194 billion that year, the highest performance loss in the company's financial report in recent years.

(Source: Wind)

In 2023, Town Health International's management experienced unprecedented turbulence, with a total of 14 shocking high-level personnel changes within the year, including three changes of chairman of the board of directors that still includes until now. Such frequent management changes make it difficult for investors not to suspect its internal management.

Among these changes, Chen Zhenkang's short term in office is particularly noteworthy. He once served as executive director and chairman of the board of directors of Town Health International Medical Group, but his term of office ended abruptly before two months. Public information shows that Chen Zhenkang has been involved in the management of dozens of companies, but unfortunately, most of his management experience has not brought significant positive results.

In addition, another executive, Liang Guoling, was accompanied by controversy during his tenure. He previously served as the company's director of operations and left in 2023. However, he was also sentenced by the Hong Kong Medical Council for professional misconduct earlier this year. According to a report by "Hong Kong 01", the reason for the conviction was that in July 2021, on his personal Facebook page, he violated the Hong Kong Code of Professional Conduct by promoting the PIAO-KANG Medical Center he founded. This violation occurred during Liang Guoling's tenure as a member of the Town Health International management team, and the operation is also disturbing.

Internal Conflict within the Core Team

While hiring flawed management, the internal conflict between Town Health International and the core team is even more rare.

As mentioned above, Zhongzhuo Medical Science was acquired by Town Health International in 2023 and contributed more than one-third of the total profit throughout the year. Shortly after the performance disclosure, on April 19th this year, the board of directors of Town Health International issued a public notice on the "Surplus Profit Guarantee of the Acquisition Target Group", accusing "Zhongzhuo Medical Sciences Holdings Co., Ltd." and its core team led by Dr. Thomas H. Lee of not completing the annual performance guarantee and intending to recover a total of 98 million Hong Kong dollars from Dr. Lee and others.

As a wholly-owned subsidiary of Town Health International, Zhongzhuo Medical Science is its core asset. As a high-quality asset that brings together high-end Hong Kong doctors, Town Health International's original intention of acquisition is to support its business performance, which was also reflected in the 2023 financial report. On the other hand, its high-end medical resources can also generate important synergies for China Life Insurance to develop high-end medical insurance and other businesses in Hong Kong.

Under the drama of self-accusation, not only has this move offended a group of famous doctors, but it also makes it difficult for Town Health International to buy good assets in Hong Kong in the future. In addition, the conflict between management and medical teams has also made the future of this core asset full of uncertainties. This open conflict undoubtedly has a negative impact on the company's reputation and stock price.

It can be seen that from the "transfer of power" of major shareholders to the frequent changes of management, to the conflicts with the core medical team, the company's governance is somewhat unsatisfactory. Town Health International seems to have fallen into an unsolvable vortex.

2. With the blessing of high-quality major shareholders and the layout in Mainland China and Hong Kong, what is the prospect of Town Health International?

Although Town Health International Medical Group has encountered a series of problems in the short term, it is undeniable that the quality of this company is not bad, and it should have a bright future.

On the one hand, Town Health International has accumulated long-term experience in medical service industry and is one of the largest and longest-established listed medical groups in Hong Kong, with its expertise widely recognized. Its extensive coverage in Hong Kong and Mainland China markets also gives it an important position in the industry.

Town Health International Medical Group's business layout covers multi-level and diversified medical services ranging from basic medical services to high-end cross-disciplinary services. At the same time, its layout in Hong Kong and Mainland China also provides it with a broader market space. Especially under the background of an aging society, the company's hospital management and health management businesses go hand in hand, bringing immense market potential.

On the other hand, China Life Insurance, as Town Health International Medical Group's major shareholder, provides solid support for it with its high-quality resources and powerful background.

The natural connection between insurance and medical health means that China Life Insurance can provide assistance in business innovation and market expansion for Town Health International's medical services. The integration of these resources will also help improve the competitiveness and market position of Town Health International Medical Group.

However, holding a good hand, now it is becoming more and more incomprehensible due to a series of reasons, which is really regrettable.

It can be seen that Town Health International's price-to-book ratio has fallen below 0.6, completely below net assets. This reflects the market's pessimistic expectations for the company's future development.

(Source: Wind)

Of course, it cannot be denied that to some extent, this also shows the current undervaluation problem faced by the company. But once the company can solve the current series of problems and restore stable development, this undervaluation situation will certainly be broken.

In conclusion, the results achieved in the first quarter demonstrate that AI capabilities have brought new opportunities to the company. With the continuous increase in the penetration rate of large models, continuous enhancement of product performance, diversification of landing scenarios, and further expansion of overseas business, Cheetah Mobile is expected to welcome a broader development space.

Looking at the present, perhaps the current management of Town Health International has great differences among its shareholders. In any case, the stability and professionalism of a company's management is very important for its development. Only through transparent and responsible management can market confidence be rebuilt, and the company return to normal operation. Only by reshaping trust can Town Health International regain respect and win development in the capital market.

So for Kang Jian International, perhaps the only way out of the current predicament is to pray for China Life Insurance, its sole major shareholder, to step forward and break through?