Key points of investment

On August 27, the company released its 2024 semi-annual report: 2024H1 operating income of 2.42 billion yuan (+9.53%), net profit to mother of 0.174 billion yuan (+21.89%), net profit of 0.139 billion yuan (+45.50%), net operating cash flow of 0.526 billion yuan (+28.08%). Corresponds to 2024Q2 operating income of 1.248 billion yuan (+8.42%), net profit to mother of 0.069 billion yuan (+53.43%), after deducting non-net profit of 0.049 billion yuan (+67.63%).

In terms of diagnosis and treatment volume, 2024H1 was 1.25 million (+17.15%, same below), hospitalizations were 0.1 million (+16.76%), of which outpatient emergency care in high-tech hospitals was 0.56 million (+3.32%) and hospitalizations were 0.0324 million (+6.23%); central hospital outpatient emergency was 0.6897 million (+31.48%), and hospitalizations were 0.0679 million (+22.56%). On a quarterly basis, 2024Q2 outpatient emergency care was 0.6434 million, up 5.85% month-on-month, and the number of hospitalizations was 0.0514 million, up 5.11% month-on-month. The number of patients treated is still showing a quarterly growth trend.

In terms of hospital revenue split, 2024H1 Hi-Tech Hospital's revenue is 0.772 billion yuan (+8.69%), net profit is 0.049 billion yuan (+43.63%); Central Hospital's revenue is 1.634 billion yuan (+14.68%), and net profit is -0.078 billion yuan (loss reduced by 0.076 billion yuan).

In terms of profitability, 2024Q2's gross margin was 11.04% (+3.2pct month-on-month, +3.67pct year-on-year), further increasing the scale effect. In terms of rates, during the 2024Q2 period, the rate decreased by 0.65pct month-on-month, the sales expense ratio was 0.87% (-0.33pct, same below), the management expense ratio was 10.85% (-1.92pct), the R&D expenses rate was 0.16% (-0.17pct), and the financial expenses rate was 3.62% (-2.05pct).

In terms of cash flow, the net operating cash flow of 2024H1 was 0.526 billion yuan (+28%), and the net cash flow from investment was -0.314 billion yuan (+26%), mainly to pay cash for the purchase and construction of fixed assets, etc., and the net cash flow from financing was -0.489 billion yuan (-20%), mainly to pay cash for debt repayment. As of the end of June 2024, the company's cash and cash equivalents at the end of the period were $0.667 billion (-29% compared to the end of 2023).

The specialist development layout is continuously optimized, and refined management promotes efficiency improvement. The central hospital is actively expanding service areas, adding a comprehensive department of traditional Chinese medicine, a second department of comprehensive rehabilitation, and a second hemodialysis department, establishing an airway management center and an EEG research center for diseases with abnormal brain-intestinal axis interaction, and opening 24 specialized clinics, including pharmacy clinics and pathology clinics. In addition, new progress has been made in the construction of the proton project. The cyclotron, the core component of the treatment system, has been successfully hoisted, and the proton therapy system has entered the stage of precise installation, commissioning and acceptance.

The top three review of high-tech hospitals progressed steadily. The indicators involved in the top three indicators were checked one by one, and the top three review self-evaluation work was initiated; refined management was increased, clinical pathway management was expanded to 42 departments, and 123 disease type templates were added, department cost control was strengthened, and hospital management efficiency was optimized and improved.

Profit forecasting

Considering the same period in 2023, especially in Q1, there were many COVID-19 patients diagnosed and treated (mostly with complications), which led to a high base for the same period. We adjusted the profit forecast for 2024-2026. We expect the company's revenue for 2024-2026 to be 5.24/5.97/6.82 billion yuan, respectively, and net profit to mother of -0.236/0.002/0.188 billion yuan, respectively. The PS corresponding to the current closing price is 1.83/1.61/1.41 times, respectively, maintaining the “buy” rating.

Risk warning:

Health insurance fee controls are getting stricter, and the number of hospitalizations is not climbing as fast as expected.