Perfect Healthcare (1830 HK — HK$3.66) announced FY1H23 results, and we had a conference call with management. Revenue fell 16.6% year-on-year to HK$668 million, mainly due to (1) a decrease in operating days in Hong Kong, China and Macau. Profit fell 30% year over year to HK$150.7 million, which we believe was mainly due to the increase in operating expenses as a share of revenue (up ~ 10%).
Looking ahead to 2023 and beyond:
The company's revenue growth guidelines for fiscal year 23 were reduced from 30% to 10%, and profit growth was 18%. The decline target was mainly due to (1) the expansion rate of Chinese stores that were lower than expected, and (2) the recurrence of the epidemic.
Looking ahead to 24 fiscal years later, the company's revenue may increase by 20%. Of this, 60-70% will be driven by internal growth, and another 30-40% will be driven by mergers and acquisitions. The profit target is a 25%-30% increase. Among them, aesthetic medicine and medical fields are the two main engines. The net profit margin target could be raised from the current ~ 23% to 25%.
Hong Kong operations have been underestimated. Revenue from Hong Kong fell 21.5% year-on-year to HK$492 million, mainly due to the severe impact of the pandemic in the second quarter of fiscal year 22. However, the company has recorded 52.1% month-on-month growth in the 3rd quarter of fiscal year 22. Together with (1) the launch of the new service center in Yuen Long, and (2) the return of monthly revenue to pre-pandemic levels, management anticipates that sales performance in Hong Kong will record a semi-month-on-month improvement, and a low double-digit increase for the whole year.
China's expansion continues to be one of the main growth drivers. The company plans to penetrate more overseas markets, such as London, and expand its network in Australia and Singapore to achieve better geographical coverage and higher efficiency.
Despite the fact that the expansion of stores in China has been delayed by the pandemic, the expansion of the Internet in China is still one of the main growth drivers. Management anticipates that by fiscal year 2025, revenue from China will at least double, contributing about one-third of the revenue.
Use mergers and acquisitions to expand the scope of services and improve efficiency. The company hopes to increase customer stickiness by expanding the scope of services and promoting cross-selling. Management aims to introduce more services in the medical field through mergers and acquisitions, such as teeth whitening and in vitro fertilization. The group aims to double the revenue from the healthcare business within 3-5 years, supported by mergers and acquisitions.
Stable payout ratio. The company announced an interim dividend of HK13.0 cents per share (FY1H22 = 17.7 HK cents), with a payout ratio of 107.4%. Management anticipates that less capital expenditure will be required in the short term. At the same time, in a net cash position (approximately HK$566 million), the company intends to maintain a dividend rate of around 100%.
The reasonable value is HK$9.8, which is 26.5 times the expected price-earnings ratio for fiscal year 24 to fiscal year 23 to 25, adjusted to 1,512 billion/1,829 billion/HK$2,214 billion. The main reason is (1) Hong Kong and China operations were greatly affected by the pandemic in fiscal year 23, (2) sales for fiscal year 24 are expected to recover from the pandemic, and (3) potential mergers and network expansion. Expected core profit for the period was HK$360 million /HK$461 million /HK$565 million. A reasonable value is HK$9.8.