This article compiles Haitong International's article "Haijiya: hundreds of billions of Cancer Service Market, sharpening the Sword and braving the Wind and waves in the past Ten years".

Hagia Medical is positioned as a chain oncology specialist.Private sectorHospitals, and in cities below the second tier。When we see private hospitals, the first reaction is that they are dirty and messy, and the level of doctors is low. Later, when they learned that it was the direction of the tumor, they thought in their hearts that tertiary and first-class hospitals may not be cured, and small private hospitals can be cured.

We went with curiosity to learn about the situation after the listing of Hygia Medical and to see if the stock price had fallen.

The result was no, and Haijiya beat the Hang Seng Index by 50 points. However, it is worth mentioning that Haijiya is one of the investment targets of Hillhouse Capital. As a matter of fact, many of us do not really understand the oncology service market, nor do we really understand the situation of cancer hospitals below the third tier. This article will give you a brief analysis of the situation of our domestic cancer hospitals, and focus on why Hagia Medical can stand out in many private hospitals.

Tumor hospital industry

I. Industry scale of oncology hospital

The market scale of tumor hospital is the largest.In 2019, the market size of Chinese cancer hospitals is 371 billion yuan, which is the largest among many medical service market segments. In addition, the number of cancer cases in China rose from 3.95 million in 2015 to about 4.4 million in 2019, the highest in the world, and is expected to rise to 5.11 million in 2025.

The distribution of oncology medical resources is uneven.In 2019, the incidence of cancer in third-tier cities and below is 10 times that in first-tier cities, while the radiation equipment per million people is less than half that in first-tier cities, resulting in a serious imbalance between supply and demand. Remote medical treatment not only causes burden to patients, but also accumulates long-term social problems in the field of oncology medicine.

The county-level market is a vast incremental market, which is significantly faster than that of urban public hospitals.According to the statistics of drug sales in the sample hospitals of Minenet, the market space of county-level public hospitals is larger, and the growth rate is the fastest.

The demand for tumor chemotherapeutic drugs in the county market is growing the fastest. According to the data of Mine.com, in the drug market of county-level hospitals, tumor-based drugs ranked first with a growth rate of 18%, significantly ahead of other categories of drugs.

II. Shortage of high-quality medical resources

We all know very well that domestic high-quality medical resources are very scarce and beds are limited.At present, the tumor is still a very intractable disease in China, and the relevant equipment in grass-roots hospitals can not meet the treatment plan of patients, so they can only go to the third-level first-class hospital. This has to face a problem: most patients only receive outpatient services and do not enjoy hospitalization services. Patients can only rent and wait around the hospital, thus forming some well-known "cancer hotels" and "cancer islands".

For a long time, oncology medicine in China has focused on first-tier cities, which makes oncology medical resources in non-first-tier cities backward and scarce. Patients in non-first-tier cities need to be referred for many times after diagnosis, which is extremely disadvantageous to the control of patients' condition. In addition, 93% of cancer patients come from cities below the third tier, which is a very large market. The original purpose of Haijiya is to provide better service for non-first-line cancer hospitals and optimize the path of diagnosis and treatment.

Hagia medical treatment

I. introduction of the company

Haijiya is the largest oncology medical service group in China. The tumor market is large, and many listed companies have set their sights on this cake. Haijiya is one of the most beautiful companies with operating data. The reason for the gap must be caused by many factors. Next, we will focus on explaining why Haijiya has become the largest oncology medical service group in China.

II. Core barriers

Haijiya occupies the equipment barrier, and the cost advantage of equipment configuration is outstanding.The gyroscope knife equipment is the fifth generation gamma knife, and the treatment accuracy is greatly improved.It is a unique independent intellectual property right and unique brand of Hagia.Because radioactive elements and military materials are involved, it is difficult for other companies to apply for product registration certificates with radioactive materials. (it can be considered that Haijiya monopolized the radiotherapy business of private cancer hospitals.)

Hagia Medical has a professional technical research and development team, so it has natural cost advantages and technical support, maintenance and other advantages in the field of gamma knife. At present, among the participants in China's oncology medical service market, Hagia has the largest number of equipment, with 9 radiotherapy equipment installed in self-owned hospitals and 19 in third-party radiotherapy centers.

III. Business introduction

Hagia's main business is divided into hospital business, third-party radiotherapy business and hospital trusteeship business, with the highest proportion of hospital business accounting for 87%.Company hospital business:Operating private for-profit hospitals and providing a series of oncology medical services and other medical services, in-patient services accounted for 72%, outpatient services accounted for 28%.The company's third-party radiotherapy business:Provide radiotherapy consultation and radiotherapy business to hospital partners (mainly private hospitals)Company hospital trusteeship business:Refers to the management and operation of private non-profit hospitals that hold the rights and interests of the sponsors and the collection of management fees, which are charged as a fixed percentage of income

High growth rate of Haijiya's overall incomeMajor growth in the contribution of hospital business. The compound growth rate of the company's overall income from 2017 to 2019 was 35%. The operating income in 2019 was 1.1 billion yuan.

1）Self-operated hospital business

Haijiya currently has seven self-operated hospitals (all in cities below the third tier).Of the seven self-run hospitals, three are self-built and four are acquired. Among them, Shan County Haijiya Hospital was built the earliest and the largest, with an income of 280 million yuan in 2019.

Shan County Haijiya is the first self-built hospital in Haijiya, with a monthly net profit of 7 months.Shan County, which belongs to Heze City, Shandong Province, is located in the southwest of Shandong Province. The total registered population is 1.28 million at the end of 2018, and the medical demand is strong. There are also two hospitals in Shan County, namely, Shan County Central Hospital and Shan County East University Hospital, but there is a relative lack of tumor treatment resources.

At the beginning of its establishment, the hospital recruited 200 middle and senior medical professionals from public hospitals and other private hospitals, covering a number of departments. The operating income of Shan County Haijiya Hospital was 280 million yuan in 2019. There were 200 patients in 49 days after the hospital opened. It earned 8 million income in half a year after opening, and achieved a positive monthly net profit in the seventh month of operation. At present, there are 400 registered beds, but 800 beds are open, with 700 beds, and we are applying for a third-class hospital.

Chongqing Haijiya is the "flagship hospital" in the system, strengthening the status of oncology specialist.There is a serious imbalance between supply and demand of tumor treatment in Chongqing. Chongqing has a population of about 31 million, and there are more than 90, 000 new cancer patients every year. However, there are few oncology hospitals, and there is only one oncology hospital in Chongqing Cancer Hospital.

Different from the business strategy of single county, Chongqing Haijiya provides more comprehensive and comprehensive medical services, such as starting from early tumor screening, Chongqing Haijiya can provide full-course management treatment for tumor patients. In addition, the relevant medical equipment is the most advanced medical equipment in China, such as Siemens PET-CT, gyroscope (one), medical linear accelerator (two) and general CT, which are better than the third-class hospitals in most first-tier cities. Chongqing Haijiya has an operating income of 170 million yuan in 2019, with 400 beds in the first phase. Due to good operation, the second phase plans to register 1500 beds, which is expected to be put into use in May 2021.

2) third-party radiotherapy center business

The company charges a certain percentage of radiotherapy service fees through radiotherapy consultation, authorized equipment use and related equipment maintenance and technical support. Due to the company's advanced equipment and professional service barriersIn the process of cooperation with third-party hospitals to maintain a high bargaining power, this part of the gross profit margin as high as 65%.

The third-party radiotherapy center has the advantages of low investment, high replicability, short payback period and short deployment time.The company only needs to invest in self-produced radiotherapy equipment (the gyroscope knife mentioned above, the fifth generation gamma knife), equipped with corresponding maintenance and technical support, quick return in the short term. At present, the company has 15 third-party radiotherapy centers, and plans to add 6-8 third-party radiotherapy centers every year in the future.

IV. Financial data

In 2019, Haijiya's income was 1.09 billion yuan, the adjusted net profit was 170 million yuan, and the net interest rate was 16%. The contribution of the hospital business mainly increased, with the overall income growing at a compound rate of 35 per cent in 2017-2019. Labor costs account for 32%, mainly because the company recruits doctors from third-tier and first-class hospitals to increase better wages.

Haijia acquires talent through high salary.The after-tax income of company doctors is significantly higher than that of public hospitals.

Haijiya's sales expense rate is less than 1%, which is superior to other private private hospitals.Because Hagia, as a hospital with tumor characteristics, depends more on the reputation and academic level of experts. Compared with the marketing mode of medical examination, ophthalmology and other specialist hospitals, Haijiya does not need to rely on advertising and other marketing means.

(note: Haijiya employs well-known local oncologists, and oncologists have their own drainage attributes. )

The breakeven speed of Hagia is much higher than the industry average, and it takes only 3-9 months from operation to profit.The average preparation period of the company is 25 months, compared with an average of 36 to 48 months in the industry. In terms of break-even, it takes three to nine months for Haijia to move from operation to profit, compared with an industry average of 36 months.

V. Management mode

1) double Dean system

Haijiya adopts two-line management of administrative and medical directors, which ensures business performance and medical quality.The medical dean selects local word-of-mouth doctors, who are in charge of medical quality and safety, and the premier is in charge of business performance. Among the existing hospitals in Haijiya, except for the administrative director of Shan County Hospital who is a local doctor, other regions such as Suzhou, Chongqing, Fujian and so on have adopted the talents trained by the Group over the past 10 years.

2) the doctor's interest is bound to the group's interest.

Equity incentives are carried out for the core dean and the head of the module. Secondly, the income of the department is linked to the income of doctors, using the "partner model". The company has done full-income and full-cost accounting for each module. Every month, every department director knows the "profit statement" of the department, and after assessment, he distributes the remaining profits.

3) strictly control the cost

Strictly control the cost through benefit accounting, and refine the hospital logistics management to every square meter. Hagia's financial analysis system can count every income and cost of each department in each hospital, share it in real time, and the manager can adjust it in time through horizontal comparison. For example, in the hospital department, the system can monitor the daily drug and income of the same department, the income of consumable materials, etc.; in the logistics part, it is refined to per square meter, including cleaning expenses, water charges, electricity charges, etc.The cost of hospital logistics management has also dropped from 16% in the initial stage to 2%.

VI. profit forecast and valuation

According to Haitong International Forecast, only for the endogenous growth of the company, excluding mergers and acquisitions, the annual income in 2020-22 was 1.42 billion yuan, 1.81 billion yuan and 2.36 billion yuan, and the corresponding adjusted net profit was 290 million yuan, 390 million yuan and 560 million yuan respectively, up 70%, 35% and 43% respectively over the same period last year.

According to the valuation of the comparable company, assuming that the PE in 2020 is 90-100 times, and the adjusted net profit of Haijiya is expected to be 2.9 billion RMB in 2020, the reasonable valuation of Haijiya in 2020 is 2.61-29 billion yuan (282-31.3 billion HKD), and the corresponding share price is 45.63-50.64HKD.

VI. Summary

For a long time, oncology medicine in China has focused on first-tier cities, making the tumor market in non-first-tier cities a "hidden corner". Another 75% of cancer patients come from cities below the third tier. The original intention of Hagia's development is to provide better services for non-first-line cancer hospitals and optimize the path of diagnosis and treatment.

Eighty-seven percent of Haijiya's income comes from self-run hospitals. There are currently three self-built hospitals and four acquired hospitals. In addition, the company makes full use of the advanced nature of its own equipment and professional advantages of technology, so that the third-party radiotherapy center has a gross profit of up to 65%.

VII. risk hint

The doctor-patient relationship in private hospitals is very sensitive and their income falls short of expectations.