Company profile

The company uses “medical+pharmaceutical” two-wheel drive as its development strategy. On the medical side, the “1+N” innovative service model of the General Hospital+Specialist Branch focuses on diseases such as tumors, cardiovascular, cerebrovascular, orthopedic, etc.; on the pharmaceutical side, it promotes unique flavor capsules to exchange price for volume under collection, and relies on the “unique flavor” brand and industry position to expand more market-competitive Chinese pharmaceuticals, and promote the extension of the pharmaceutical industry chain and development into the consumer sector.

Hospitals in the body operate well, and stock expansion promotes steady growth

The company has set up five regional medical centers in Liaoning, Henan, Jiangsu, Jiangxi and Sichuan. It has 3 tertiary hospitals and 7 level-II hospitals. Most medical institutions have achieved market-based operation for a long time and have a high share in the local market. Currently, more than 6,000 beds have been opened, the bed usage rate is about 90%, the average annual output of single beds is about 0.4 million, and the overall net interest rate is about 9%. All medical institutions have implemented DRG/DIP, 2024H1 hospitals that have implemented DRG have achieved health insurance balances, hospitals that have implemented DIP have solved department losses on a large scale, and the overall adaptation situation is good.

Follow-up prospects: 1) Expansion of the stock of beds, with plans to open more than 2,000 new beds one after another, corresponding to the treatment field where there is a local demand gap and is the hospital's dominant discipline; 2) the output of single beds has increased. Currently, the annual output of high-quality hospitals is 0.5-0.6 million, which is expected to increase the average annual single-bed output by increasing turnover and adjusting department structures; 3) the net interest rate of the company's target hospitals is 10%-12%, and there is still room for improvement through more refined management.

The in-vitro hospital has excellent assets and is progressing well. Xinmileage Group, the controlling shareholder of the asset injection company, has begun to control and manage nearly 40 hospitals above Class II and 200 primary medical institutions in nearly 20 provinces and cities across the country. The total number of medical and health care beds has reached 0.03 million. The Group plans to give priority to injecting high-quality medical assets with good profitability into listed companies as soon as possible within 5 years after the company restructuring is completed in June 2022. The revenue scale of the Group's hospital sector is about 6 billion, and the net interest rate in 2023 has reached 7%-8%, of which the leading hospitals have a net interest rate of more than 10%. Judging from the restructuring progress, 70% of hospitals above level 2 in the unlisted sector are for-profit medical institutions.

On October 16, the company announced that it plans to acquire 100% of Chongqing Xinmileage's shares from Xinmileage Health for 0.32 billion yuan. Chongqing Xinmileage has business entities such as Jinyi Hospital and Shengjing Hospital, with a total number of beds exceeding 1,000, revenue of 0.315 billion yuan in 2023, net profit of 1.21 million yuan, and a net interest rate (including supply chain) of 1.29%. This acquisition is equivalent to 1.02 times PS (based on 2023 revenue calculation), and the purchase price is reasonable. This acquisition is the starting point for Xinmileage Group to officially begin injecting high-quality assets.

Profit forecasting

We expect the company's revenue in 2024-2026 to be 4.288/4.906/5.851 billion yuan, respectively, net profit to mother of 0.135/0.263/0.38 billion yuan, EPS 0.04/0.08/0.11 yuan/share, respectively. The current closing price corresponds to PS 2.05/1.79/1.50 times, respectively, maintaining the “buy” rating.

Risk warning:

Risk of policy changes; risk of expansion falling short of expectations.