As a symbol with scarcity characteristics in the Hong Kong stock market, JXR has always attracted the attention of market investors.

However, in recent years, the company's performance in the capital market has been under pressure. But from a fundamental perspective, JXR's overall performance is still remarkable. In addition, the assisted reproduction industry is experiencing favorable policies, especially from provinces that have included assisted reproduction in medical insurance, which has greatly increased the business volume for assisted reproduction.

So, what are the market's expectations behind the lack of resonance between the fundamentals and valuation? In the current situation of positive industry policies, how should we view the current opportunities?

1. Institutional profitability continues to increase, and operational achievements are consistently delivered.

Looking at the recent mid-term financial report of JXR, it can be said that the operating conditions presented in this semi-annual report are still stable and solid.

The financial data shows that JXR achieved revenue of 1.44 billion RMB in the first half of the year, a year-on-year growth of 8.2%; adjusted EBITDA of 0.418 billion RMB, a year-on-year growth of 6.1%; adjusted net income of 0.26 billion RMB, a year-on-year growth of 1.8%.

While maintaining stable core performance indicators, the company's operating cash flow performance is also very good, which directly demonstrates its excellent internal generation capability. In the first half of the year, the net cash flow from operating activities reached 0.384 billion RMB, a year-on-year growth of 14.0%.

In the face of a complex external market environment, JXR continues to maintain a solid financial foundation and continuously optimize its debt structure. In the first half of the year, the company's interest-bearing debt ratio decreased to 13.7%, a year-on-year decrease of 0.6 percentage points.

In domestic and international business, the company develops different development strategies based on the characteristics of its medical institutions' geographical location, development stage, and promotes the upward development of domestic and international business.

Domestic business aspect

For mature institutions, JXR takes the Chengdu model as a model to create an integrated service for families to provide fertility and health management with assisted reproduction as the core. By strengthening core departments such as reproductive medicine and obstetrics and continuously enhancing diversified disciplinary construction, expanding the business scope, enhancing brand influence, attracting a wider customer base, JXR reserves patients with longer core business conversion cycles.

For incubating institutions, JXR continues to focus on the core business of assisted reproduction, strictly promotes the improvement of the quality and safety system, and changes the operating model from marketing-driven to operation-driven.

Looking at the overseas aspect

In the USA business, the company continuously anchors the development trend of the US assisted reproduction industry, strengthens the doctor strategy and the 36-year brand history. With the expansion of the doctor team, a solid foundation has also been laid for HRC's expansion.

In 2023, HRC welcomed 4 new doctors, and is expected to have 5 new doctors join in 2024. By the end of the year, the number of HRC's own reproductive doctors is expected to reach 24. In the first half of 2024, HRC achieved a year-on-year growth of approximately 22% in total cycles. The integration of new and old doctors not only promotes the increase in HRC's business volume but also provides a talent reserve for HRC's expansion. As of now, HRC Medical has 4 core clinics and 7 satellite centers in Los Angeles and San Diego areas in the USA. At the same time, actively adapting to the trend of egg freezing in the USA, HRC has launched egg freezing packages, further increasing HRC's influence in the US assisted reproduction market.

In addition, in other overseas regions outside of the United States, Jinxin Reproduction is also adapting to local conditions and promoting the development of its business in overseas regions according to the characteristics of each region. Among them, the Jinxin Reproduction Center in Laos has created an efficient self-operated model with a "small but beautiful" approach, and achieved profitability in less than a year, providing a feasible reference model for the company's expansion into other emerging markets in Southeast Asia.

It is worth mentioning that in April of this year, Jinxin Reproduction also signed a contract with Morula, the largest assisted reproduction group in Indonesia, becoming its largest strategic investor. Morula has an extensive service network in Indonesia, with 10 IVF clinics. Through this cooperation, Jinxin Reproduction will be able to inject its advantages and resources in medical technology, doctor training, information technology, and customer relationship management into Morula, further improving its service quality and operational efficiency. As the first step taken by Jinxin Reproduction in Southeast Asia through strategic investment, this not only helps the company's in-depth development in the Indonesian market, but also provides valuable experience and models for future strategic expansion in other Southeast Asian countries.

It can be seen that with innovative operating models and strategic investments and collaborations, Jinxin Reproduction is gradually building a global network of assisted reproductive services to meet the needs of patients in different regions and promote the company's sustained growth and international development.

2. Policy and industry innovation driving force, combining certainty and growth

Overall, in terms of performance and business strategy, Jinxin Reproduction has clearly demonstrated its path of high-quality development to the outside world. At the same time, the company is also facing a series of catalytic bullish factors, which continue to bring about certain and high-growth opportunities for the company's development.

First of all, policies are continuously providing positive driving forces for the development of the assisted reproductive industry.

From the domestic market perspective, favorable policies for the industry are being implemented one after another. The certainty of favorable medical insurance policies can be said to bring optimistic expectations for the future business development of Jinxin Reproduction.

It is worth mentioning that currently, under the promotion of the National Medical Insurance Bureau, 19 provinces including Beijing, Guangxi, Inner Mongolia, Gansu, and the Xinjiang Production and Construction Corps have included assisted reproductive technology in the scope of medical insurance reimbursement. Sichuan, Guangdong, Hubei, and Yunnan, where the company's subordinate institutions are located, have all issued solicitation letters related to the inclusion of assisted reproduction in medical insurance reimbursement or pricing, and are expected to be implemented in the near future.

With the implementation of medical insurance, the demand for assisted reproduction market is expected to be released, driving a significant increase in the number of infertility patients seeking treatment, providing momentum for the sustained growth of the assisted reproduction industry.

Source: National Medical Insurance Administration Website.

According to the 'China Assisted Reproductive Research Report 2023' published by Yuwa Population Research, it mentioned that 55.7% of infertile patients gave up using assisted reproductive treatment due to high prices. When the subsidy ratio reaches 20%, the treatment willingness of potential patients will increase from 71% to over 80%.

(Source: Yuwa Population: 'China Assisted Reproductive Research Report 2023')

Moreover, according to the areas that have already been included in medical insurance, the policy has greatly stimulated the number of assisted reproductive visits. Previously, a person in charge of the Guangxi Medical Insurance Bureau mentioned in an interview with China Youth Daily that since the implementation of the policy in November 2023, the outpatient visits to the autonomous region's assisted reproductive institutions reached 0.6077 million times, a 35.6% year-on-year increase.

Turning attention to the United States market, there is a surge in innovation in the assisted reproduction industry. The continuous innovation in the industry has also brought greater imaginative space for the future development of HRC.

Currently, whether it is product innovation, operational mode innovation, or payment method innovation, they all provide continuous driving force for the industry's development.

Looking at Progyny, the leading company in the field of infertility insurance in the United States, it is driving innovation in payment methods. The company is able to provide IVF and other fertility benefits solutions for employees of corporate employers, by combining technology, insurance, and medical practices to offer personalized treatment plans and financial support. This has also established a strong market position for them in the field of assisted reproduction.

In addition, in terms of product and operation mode innovation, KindBody is at the forefront. Through online and offline cooperation modes, it provides solutions for reproductive health such as IVF and egg freezing, not only improving the accessibility of services, but also reducing costs through technological means, making advanced reproductive services more affordable for more families.

In summary, the positive promotion of policies and continuous innovation in the industry have brought huge development opportunities for leading reproductive assistance enterprises like JXR. With the release of market demand and continuous innovation and progress in products, technology, and service models, the market opportunities for the assisted reproduction industry will continue to be promising.

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.

Currently, along with the Fed entering an interest rate reduction cycle, the performance of the medical sector in the Hong Kong stock market is continuously bullish in the eyes of market institutions.

Recently, CITIC Securities' research report pointed out that combined with the industry performance during the interest rate reduction cycle, it is recommended to focus on the medical care industry that benefits from the decline in borrowing costs. In fact, during previous interest rate reduction cycles, enterprises with stable cash flow are more likely to stand out, partly because of their defensive properties and partly due to the potential for sustained expansion brought by their solid cash flow.

As the leading enterprise in the assisted reproduction industry, JXR's past financial performance has shown that the company has stable cash flow and good business growth capabilities. Through steady expansion domestically and internationally, as well as continuous advancement in innovative business, the company has built strong brand influence and market competitiveness in the field of assisted reproduction services.

At the same time, it can also be seen that the company has shown a positive side in both management's shareholding and repurchases, continuously boosting market confidence.

It is worth mentioning that on August 30, the company spent 9.57 million Hong Kong dollars in the market to repurchase 4 million shares, and before the end of July, the company had spent 21.84 million Hong Kong dollars to repurchase 9 million shares.

Through consecutive repurchase actions, it is not difficult to see the company's confidence in its own value and optimistic expectations for future development.