Matters:

On August 29, 2024, the company announced its 2024 interim report. In the first half of 2024, the company achieved revenue of 2.382 billion yuan (+35.4%), net profit of 0.385 billion yuan (+14.9%), adjusted net profit of 0.4 billion yuan (+15.58%), and an adjusted net profit ratio of 16.8%.

Commentary:

The hospital business resumed further and achieved continued healthy growth. In the first half of 2024, the company achieved hospital business revenue of 2.307 billion yuan (+37.2%), of which outpatient revenue was 0.813 billion yuan (+49.6%) and inpatient revenue was 1.495 billion yuan (+31.3%). In the first half of '24, the company achieved oncology related business revenue of 1.046 billion yuan (+31.1%), accounting for 43.9% of total revenue. In the first half of 2024, the company performed more than 0.046 million surgeries, and surgery revenue increased 38.6% year-on-year, mainly due to the rapid increase in the proportion of grade 3 and 4 surgeries and interventional surgeries. As of the first half of '24, the company had 7,587 medical professionals, an increase of 104 compared to the beginning of the year, including 1,220 senior professional and technical personnel. The recruitment of medical talents continued to increase.

The company's profitability continues to be stable. In the first half of 2024, the company's gross margin was 31.8%, operating margin was 33.5%, and the gross margin level remained stable. The company's sales expenses for the first half of 2024 were $0.03 billion, mainly including consulting and professional service fees, marketing and promotion expenses, and employee benefits expenses. The sales expenses ratio was 1.2%. Taken together, the company's adjusted net interest rate for the first half of 2024 was close to 17%.

Self-built mergers and acquisitions progressed smoothly, and subsequent production capacity reserves. After successfully passing the inspection in March of this year, Dezhou Hygea Hospital has now been officially opened in July, adding 1,000 new beds; the company's other hospital projects under construction include Wuxi and Changshu Haijia Hospitals, etc., and it is expected that an average of 900 or 1,000 new beds will be added after commissioning.

Preparations have begun for Chang'an Hospital Phase III, Hezhou Guangji Hospital Phase II, and Suzhou Yongding Hospital Phase II, and Kaiyuan Dehua Phase II has begun civil engineering.

Investment advice: According to the company's interim report and the latest operating conditions, we expect the company's net profit forecast for 24-26 to be $8.36, 10.96 billion, and 1,374 million yuan, up 22.4%, 31.1%, and 25.4% year on year, and adjusted net profit of 882, 11.27, and 1,383 million yuan, up 23.7%, 27.7% and 22.7% year on year. Based on adjusted net profit, the PE corresponding to the current market value is 10.4, 8.2, and 6.6 times, respectively. The company's endogenous growth is resilient in the short term, and new production capacity is being implemented in an orderly manner. In the medium to long term, the company's core cancer strategy remains unchanged, and management capabilities are outstanding. Referring to comparable companies and considering the company's Hong Kong stock market, we gave the company a target PE of 15 times in 2024, corresponding to a target market value of HK$14.5 billion and a target share price of HK$23. Maintain a “Recommended” rating.

Risk warning: price adjustments for medical services, business development falling short of expectations, etc.