The net profit of homecoming increased by 42% in the first quarter of 2001 compared with the same period last year, thanks to the recovery of business after the epidemic and the completion of the new hospital.

We have reduced our adjusted net income per share for 21 / 22 by 10% to 9% respectively, which mainly reflects the dilution effect of the issuance of new shares on earnings per share of about 9%.

We raise the target price of the segment plus total valuation method to HK $9.5; we are optimistic about the executive ability of the company to integrate mergers and acquisitions in state-owned enterprise hospitals, and the forecast dividend yield for fiscal year 22 is 7%, so it is more attractive to maintain the buy rating.

Steady recovery in the first quarter

Operating income increased by 22% in the first quarter of 2001 compared with the same period last year. Management saw double-digit growth in revenue and profits in the financial and consulting business, thanks to continued growth in interest-bearing assets and

A drop in the cost of capital. Management expects the robust net interest margin and net interest margin in the first quarter of 21 to continue throughout the year, thanks to its increasingly diversified interest-bearing portfolio (non-medical assets account for about 35 per cent of 20-year financial lease income, compared with 26 per cent in 19 years) and potential improvements in the cost of capital. With the company's competitive advantage in the domestic leasing market, we expect the company's financial and consulting business to maintain a low double-digit growth rate during the 2021 / 22 period. At the same time, management saw strong revenue growth in the hospital sector in the first quarter (up 40% from a year earlier), thanks to the return to normal operation of hospitals and the completion of the merger of two state-owned hospitals.

The consolidation of hospitals in state-owned enterprises is progressing steadily.

By the end of the first quarter of 21, the company had completed the consolidation of 40 state-owned enterprise hospitals (the cumulative number of beds reached about 10,000). Management is expected to relist at least nine contracted state-owned hospitals (with about 5, 000 beds) within 21 years, bringing the total number of beds in their hospitals to about 15000. In addition, the company is confident that the profitability of these medical institutions will be improved within 3-5 years (from the current net profit margin of less than 3% to 8-10%). Based on our neutral assumption in 2025, the 49 hospitals listed by the company (the total hospital income is expected to be 5.5 billion yuan in 21 years, CAGR is 5% in 21-25 years; the average hospital equity owned by the company is about 55%), the average net profit margin will reach 6% in the medical services business and 10% in the supply chain business. We believe that these hospital assets are expected to significantly increase the company's parent net profit of about 400-500 million yuan in 2025.

Further optimization of ownership structure is expected to usher in growth; maintain buy rating

We have rolled over the valuation base period to the end of 2021 and raised the target price based on the segment plus valuation method from HK $9.2 to HK $9.5. We believe that the company's recently completed private placement of new investors (Yuanzhi Group, accounting for about 9% of the shares after the IPO) and through the issuance of convertible bonds to existing shareholders (such as 9% of the enlarged equity after the completion of the debt-to-equity swap), it will further optimize the company's ownership structure and help improve capital allocation capacity to seize more opportunities for epitaxial growth. Maintain the buy rating.