Key points of investment
Performance Overview: Revenue rose 33%, and profits were under pressure due to the rise in new stores. According to the company's announcement, in FY23, the company achieved revenue of HK$3.88 billion, +32.7% year-on-year; net profit of HK$70 million, -64.7% year-on-year. According to previous performance forecasts, the decline in profit is mainly due to: 1) investment in new facilities but no revenue has yet been generated; 2) increased operating costs due to inflation; and 3) increased interest expenses.
Revenue split: The share of healthcare increased sharply, and veterinary medicine may become a new growth pole 1) By business: medical/medical aesthetics and bioaesthetic/veterinary and other businesses achieved revenue of HK$25.4/1.0.0/HK$230 million, +50.5%/1.0%/66.0% over the same period, accounting for 66%/28%/6% respectively. Among them, the medical business accounted for a 7.7pp increase over the same period last year, with strong endogenous growth+increased cross-brand referrals driven high revenue growth; the lower revenue growth in the medical aesthetics & beauty business was mainly due to the impact of the fifth wave of COVID-19 in Hong Kong; in addition, the veterinary business continued to be beautiful. The company acquired a new veterinary clinic and opened its first self-built hospital in FY23, and will continue to invest in building a leading Hong Kong veterinary brand in the future.
2) By region: Hong Kong/Macau/Mainland revenue was HK$35.8/13/170 million HKD respectively, +35.9%/+13.6%/-2.5% over the same period, accounting for 92%/3%/4%.
3) By type of institution: endogenous growth/new mergers and acquisitions account for 96%/4% of institutional revenue.
Profitability: Business expansion dragged down net profit performance in the short term. Waiting for the scale effect highlighted the annual net profit margin of 2.8%, compared to the previous year - 6.5 pp, the main increase in various rates: inventory and raw materials/registered doctor expenses/employee remuneration/advertising expenses were 14.3%/25.1%/28.0%/4.5%, +2.3 pp/ +2.6 pp/ +3.0 pp/ -0.3 pp over the previous year.
As of FY23, the company had 168 service points (Hong Kong 147+Australia 4+Mainland 17), of which 21 were added in the past year. The area of service institutions was +32% over the same period, and the additional area of traditional Chinese medicine/medicine, beauty, veterinary, etc. accounted for 68%/4%/28% respectively. The company currently covers 35 medical specialties (+6), with 313 full-time registered doctors (+62). The expansion of the layout and the addition of new businesses focus on medical care to drive the increase in manpower and consumables costs in the short term. It is expected that with the rise in institutional operations, the scale effect will gradually become apparent, and net interest rates are expected to recover.
Outlook: Passenger flow is being replenished and integrated, and the company's operations can be expected to rise. According to the company's official website, the revenue share of the company's old/new customers in FY23 was 67%/33%, and the share of new customers increased by 3pp. Looking at the whole year, mainland customers accounted for 6.4% of Hong Kong sales, +1.5pp over the previous year. Among them, the proportion of FY23Q4 where Hong Kong and mainland resumed customs clearance reached 14.6%, a sharp increase of 10.1 pp from month to month. The recovery effect is gradually showing, and the contribution is expected to increase significantly.
In recent years, the company has continued to insist on endogenous growth+epitaxial expansion two-wheel drive. According to the official website, if we evaluate the historical business that existed before FY2019, its compound sales growth rate in the past 3 years reached 22%. If new acquisitions were assessed, the sales CAGR of the 19-year M&A portfolio reached 11% in the past 3 years, and the CAGR of the 20-year merger and acquisition portfolio reached 26% in the past 2 years. The future will continue to verify the operating capacity of new and old businesses. The future will be accompanied by the optimization of old stores, the rise in performance of new stores and the gradual integration of new institutions.
Profit forecasting and valuation
The company is the largest non-hospital medical service provider and medical and aesthetic service provider in Hong Kong. It combines endogenous growth+outreach mergers and acquisitions, refines medical assets, and creates a one-stop service platform. With the stabilization of the Hong Kong and mainland business environment and the return of cross-border travelers, the company expects to return to the fast track of development in FY24. Furthermore, considering the climbing cycle of new stores and the increase in the share of the medical business, we have adjusted our profit forecast moderately. The net profit of FY24-26 is estimated to be HK$2.4/35/HK$4.7 billion respectively, +249%/44%/35% over the same period. The current market value corresponds to PE 20/14/10X. The valuation has considerable room for improvement compared to the existence of Hong Kong stock consumer medical industry standards, maintaining the “buy” rating.
Risk warning
Consumption recovery falls short of expectations, new stores fall short of expectations, changes in regulatory policies, and risks of medical and aesthetic accidents.