Fire the first shot.

"Investors Net" Cai Jun

Recently, New Journey Health Technology Group (002219.SZ, hereinafter referred to as the "company"), which is slowly recovering, has also begun merger and expansion.

This is the first major acquisition after the new shareholder took over the company, and it is also the "first shot" to inject assets. With medical services as its main business, the company has advantages in the sinking market. In this round of acquisitions, on the one hand, breakthroughs can be achieved regionally; on the other hand, the diversified business layout of the largest shareholder will be implemented in the listed company.

During the acquisition process, we can also see the tactics of the major shareholder. Under the background of strict national scrutiny of medical insurance funds, whether the three company goals of asset injection, improvement of internal control, and performance growth can proceed simultaneously remains to be seen.

The two hospitals that were punished

The major shareholder of New Journey Health Technology Group has triggered the asset injection.

According to the announcement, the company plans to acquire all the equity of Chongqing New Journey for 0.32 billion yuan, using its own funds or self-raised funds. The target is fully controlled by the platform under the company's largest shareholder, New Journey Health Technology Group, thus constituting a related transaction.

This kind of asset injection through external cultivation is common in the health industry. In response, company executives stated that this acquisition is the "first shot" of injection. The reason for choosing Chongqing is mainly due to its strong location advantages, scale and growth advantages, and strategic value. The group plans to build this region into a medical group with revenue of 0.8 billion to 1 billion yuan in the future through "internal growth + external mergers and acquisitions".

The key point of the opening shot lies in aiming and hitting the bull's-eye, but the high premium acquisition in the external cultivation process has always been controversial. In fact, some highly priced related transactions have been mocked as shooting first and drawing the bull's-eye later.

The transaction plan shows that this company's transaction reference assets are evaluated based on the asset-based method and the income method, with an impairment rate of 1.57% for the former and an appreciation rate of 33.09% for the latter. The final result adopts the income method because it can better reflect the growth and profitability of the target. As of the evaluation reference date, the target's net assets are 0.242 billion yuan, and the revenue in 2023 is 0.31 billion yuan.

From this perspective, growth is the key to the valuation of acquisitions. From 2020 to 2023, the target's net income (including the supply chain) was -17.62 million yuan, -5.11 million yuan, 5.21 million yuan (first ten months of that year), and 4.05 million yuan, completing the phase of climbing to profitability. In the first seven months of this year, the target's net income reached 9.986 million yuan.

Specifically, the acquisition targets hold stakes in multiple companies, with core business entities including Jinyi Hospital, Shengjing Hospital, Baian Hospital, and Kanghua Hospital. The company stated that one of the criteria for injecting quality assets is compliance. However, according to enterprise search, Shengjing Hospital and Baian Hospital were penalized and required to return medical insurance fund losses multiple times from 2023 to April this year, involving practices such as excessive charges, over-examinations, and including expenses not eligible for medical insurance payment in fund settlement.

In the first seven months of this year, Shengjing Hospital and Baian Hospital had revenues of 44.667 million yuan and 31.898 million yuan respectively, with net profits (including the supply chain) of 4.814 million yuan and 2.91 million yuan.

The rush and maneuvering before the acquisition

In 2022, the former leading private medical company, Hengkang Medical, was approved for a restructuring plan. Previously, the company collapsed due to extensive acquisitions and operations. The acquiring party was New Journey Health Technology Group, which, together with several financial investors, restructured the company, renamed it, and directly held 24.23% of the company's shares.

The new journey health technology group, which is skilled in capital operation, also designed in this round of acquisitions. Previously, the group first acquired all the equity of the target through its subsidiaries, New Journey Health and New Journey Health Management, and then began internal restructuring.

In November 2022, New Journey Health Care acquired 23.2% of the equity held by New Journey Health Management for 80.55 million yuan. In October of this year, before the announcement of this round of transactions, New Journey Health Care acquired 76.83% of the equity held by New Journey Health for 0.246 billion yuan. Calculated this way, the total amount of the two internal transfers is 0.326 billion yuan, which is close to the total amount of this round of acquisitions.

No matter how the internal restructuring is carried out, the target will eventually be injected into a listed company. The current question is whether the company has enough ammunition in place. As of the third quarter of this year, the company had 0.43 billion yuan in cash and cash equivalents, and 0.77 billion yuan in short-term borrowings. Taking into account the 0.32 billion yuan from this acquisition, it will test the company's financial arrangements.

From a performance contribution perspective, New Journey is also at a time to seek incremental growth. In the first three quarters of this year, the company's revenue and net income attributable to shareholders of the listed company were 2.68 billion yuan and 0.053 billion yuan, with year-on-year growth of 6.93% and 57.98%, respectively. On the revenue side, the company stated at an investor conference that it expects the target's revenue for this year to reach 0.35 billion yuan.

Regarding subsequent asset injections, the company also disclosed that it will focus on purchasing by issuing shares, with the target needing to meet conditions such as complete compliance, reasonable valuation, profitability, and high growth. Currently, about 70% of extracorporeal hospitals have completed profit-oriented reforms, and the company will continue to advance the work of asset injections.

Another capital series?

The current New Journey Health Technology Group spans across medical services and finance, with important assets such as New Journey and Love Life Insurance. It seems to be another emerging capital series.

In September, Love Life Insurance announced that the Beijing Regulatory Bureau of the China Banking and Insurance Regulatory Commission has approved New Journey Health Technology Group to increase its registered capital by 0.244 billion yuan. Since 2022, the group has increased its investment in Love Life Insurance three times in a row, raising its shareholding to 26.72%. According to relevant regulations, the group's shareholding in Love Life Insurance has a limit of 33.33%.

This acquisition is also a deepening of the group's dual-drive strategy. The company disclosed that Anxin Life is increasing its business development in Chongqing. Through the 'Ding Ling Doctor' platform, both parties have connected online and offline health management rights, which is a key practical base for medical + insurance. In terms of specific operations, patients who purchase commercial insurance can, when seeking medical treatment at various medical institutions in Chongqing New Journey, in addition to medical insurance reimbursement, settle the expenses within the scope of commercial insurance liability in real time, greatly simplifying the process compared to the model of advance payment followed by reimbursement.

However, it should be pointed out that compliance should never be relaxed. In September, Anxin Life was fined 0.2 million yuan by the Beijing branch of the National Financial Regulatory Administration for not using insurance company funds in accordance with regulations.

On the other hand, listed companies may achieve regional upgrading through acquisitions. Currently, the hospital layout of the New Journey is mainly in sinking markets such as Lankao, Wafangdian, Siyang, and Xuyi, leading in local medical market share.

Take Siyang Hospital as an example. In the first half of this year, the revenue and net income were 0.305 billion yuan and 3.498 million yuan, respectively, and it was among the top 300 county-level hospitals domestically and the top 100 privately-run hospitals. However, in October, the hospital was fined by the local health bureau for not informing patients of alternative medical treatment plans.

In the first three quarters of this year, the revenue of the company's medical service sector was 2.09 billion yuan, accounting for nearly 78%. During the same period, there were approximately 2.23 million outpatient visits, a 4% year-on-year increase; the number of discharged patients was 0.18 million, almost unchanged year-on-year, with outpatient and inpatient revenues in a ratio of about 3:7.

According to the company's disclosure, medical insurance revenue accounts for about 50% of medical services. Against the backdrop of pressure on medical insurance payments, the bad debt ratio is less than 5%, including provisions based on accounting policies and potential bad debt risks calculated based on payment policies. (Produced by Thinking Finance) ■