Event

On July 24, the company received a "letter of concern" from the Shenzhen Stock Exchange expressing concern about the financial profitability, operating qualifications and reasonableness of the transaction of the three medical institutions acquired by the company. On the evening of August 5, the company replied to the "concern letter" of Shenzhen Stock Exchange. The valuation method of brief evaluation is consistent with that of comparable companies in the same industry, and the transaction consideration is reasonable. The company uses the asset-based method and the income method to evaluate the equity value of the subject matter of the transaction, and finally adopts the income method. Its rationality lies in: 1. There is no significant difference between the income method and the case evaluation method of transactions in the same industry. 2. At present, the vast majority of transactions in the same industry are valued by the income method. for example, the income method is used in the acquisition of Zhejiang Liantianmei, Lang Zi shares, Milan Baiyu and Jingfu Medical Services, Guangyi shares, Chongqing Junmei, Guangdong Han Fei, Madiston, Haikou Mary, Chao Acer, Shanghai Siyanli, etc. 2. The business model of downstream medical and beauty institutions determines that the income method is more appropriate. The investment of medical institutions in fixed assets is small, the variable cost of labor and consumables is higher, and the operation mode of "the company receives in advance, the customer consumes later", the cash flow is good, so the requirement for shareholders' early investment is low, and the book net assets is not high. Therefore, the asset-based approach will underestimate the value of the physician team. From the valuation of the final transaction consideration, the dynamic PE of the three hospitals acquired by the company is in 12.18x-16.26x, and the dynamic PE of the above comparable company transaction case is in 12x-17.21x, and the valuation corresponding to the transaction consideration of the company is reasonable in the same industry. The overall profitability of the acquisition target is at a reasonable level in the industry. The proportion of non-recurrent profit and loss of the three hospitals is very small, and their performance is stable and sustainable. According to the disclosed profit margin, the gross profit margin of the three healthcare companies is at 51.20% muri 54.22%, while the comparable company is at 50.51% muri 60.43%, with a median of 54.34%. The gross profit margin of the three healthcare companies is slightly lower than the comparable median level, but also within the range of comparable companies as a whole. In terms of net interest rate, the net interest rates of Wuxi Suya, Tangshan Suya and Shijiazhuang Suya in 2020 were 17.18%, 17.21% and 13.89%, respectively, while those of Aoyuan Meigu-Liantianmei and Huahan plastic surgery were 16.59% and 13.49%, respectively. The profitability of the company's three medical beauty standards is at a good level. Medical beauty business expansion started, reaffirming the company's transformation of the three core advantages of medical beauty. This time, the company transferred the high-quality results of in vitro transformation into the reports of listed companies, on the one hand, it shows that the company's medical and beauty business experience has been accumulated to a certain extent, on the other hand, it also reflects the company's determination to transform medical beauty, make it bigger and better, and strengthen its medical beauty business. We believe that the company's transformation of medical beauty has three core advantages: 1, business precipitation advantage. The company has long accumulated in the field of medical beauty, has formed its own brand "Suya Medical Beauty", and will expand the moat through mergers and acquisitions in the future. 2. Capital advantage. At present, the company has abundant land reserves, high profit margin and low financial debt ratio, and there are few new land reserves after 2016. The cash flow of the future development business will provide strong financial support for the medical and beauty business. In addition, the company also has 5 billion medical and beauty industry funds set up with major shareholders that can be used for mergers and acquisitions. 3. Capital platform and incentive advantages. The company's repurchased shares account for 9.48% of the total share capital and are intended to be used as employee stock ownership or equity incentives, which will be attractive to medical and beauty professional managers in the future.

Maintain the buy rating. We estimate that the EPS of the company from 2021 to 2023 is 0.40, 0.48, 0.59 respectively. The company's financial position is good, the real estate profitability is strong, and the strength to the medical and beauty business continues resolutely, so it gives the buy rating.

Risk hints: real estate regulation exceeded expectations; mergers and acquisitions in the medical and beauty industry fell short of expectations.