20150717-交银国际证券-Well_positioned_for_China_s_public_hospital_industry_12页_456kb

Phoenix Healthcare Group (1515.HK) Summary

Core Content

Phoenix Healthcare Group (PHG) is a leading player in China's public hospital industry, having successfully entered the sector with a unique business model. The company is well-positioned to benefit from ongoing healthcare reforms in China, which aim to improve efficiency, management, and accessibility in the public hospital system.

Main Points

• Market Position: PHG is the largest private hospital group in China based on beds and patient visits as of 2012. It operates 15 general hospitals and 42 community clinics as of May 2015.
• Business Models:
  • General Hospital Business: PHG owns 80% equity in Jian Gong Hospital, a Grade II general hospital in Beijing, and operates it directly.
  • Hospital Management Business (IOT model): PHG manages several hospitals and clinics through contracts, receiving management fees and improving operations through centralized procurement, logistics, and staffing.
  • Supply Chain Business: PHG centralizes procurement for its in-network hospitals, generating revenue from pharmaceutical and medical supply distribution.
• Strategic Expansion:
  • PHG entered into a cooperation agreement with Beijing Shunyi District in May 2015 to establish a new community healthcare service system under the PPP-ROT model.
  • PHG acquired 20% equity in UMP Healthcare for HKD180m and formed a joint venture with UMP China to establish three self-owned clinics in Beijing.
• Valuation:
  • PHG's intrinsic value is estimated at HKD13.5bn using the DCF model.
  • The target price is HKD16.19, implying a 24.7% upside from the last closing price of HKD12.98.
  • The P/E ratio for FY15E and FY16E is 40.2x and 35.3x respectively.

Key Information

• Financial Highlights (Y/E 31 Dec):
  • Revenue (RMB m): 887.4 (2013), 1,206.3 (2014), 1,436.7 (2015E), 1,632.6 (2016E), 1,841.7 (2017E)
  • YoY growth (%): 17.1%, 35.9%, 19.1%, 13.6%, 12.8%
  • Net Profit (RMB m): 90.0 (2013), 230.1 (2014), 268.9 (2015E), 305.7 (2016E), 347.5 (2017E)
  • EPS (RMB): 0.16 (2013), 0.28 (2014), 0.32 (2015E), 0.37 (2016E), 0.42 (2017E)
  • EPS growth (%): -17.7%, 77.2%, 16.5%, 13.7%, 13.7%
  • P/E (x): 66.4, 37.5, 32.2, 28.3, 24.9
  • P/B (x): 5.0, 5.9, 5.6, 4.9, 4.4
  • Dividend Yield (%): 0%, 1.2%, 1.5%, 1.7%, 2.0%
• Stock Data:
  • 52-week High: HK$17.20
  • 52-week Low: HK$9.50
  • Market Cap: HK$10,822.24m
  • Issued Shares: 833.76m
  • Avg Daily Vol: 3.77m
  • 1-month Change: -11.94%
  • YTD Change: -9.23%
  • 50-day MA: HK$14.73
  • 200-day MA: HK$14.09
  • 14-day RSI: 43.7
• Financial Model and Assumptions:
  • Free cash flow is stable, supporting the DCF valuation.
  • Assumptions include a terminal growth rate of 3.5%, WACC of 8.2%, and a cost of equity of 10.3%.
  • The DCF model estimates intrinsic value at HKD13.5bn.

Strategic Advantages

• First-mover Advantage: PHG has a track record of successfully managing public hospital reforms, starting with Jian Gong Hospital in 2000 and Mentougou District Hospital in 2010.
• Government Support: PHG benefits from supportive policies in Beijing, which is a key city for hospital reform and has been a pilot area for public-private partnerships.
• Multi-level Healthcare Structure: PHG's expansion into community healthcare and joint ventures with UMP Healthcare aims to create a more integrated and value-added healthcare network.

Risks

• Earnings Growth: While reformed hospitals may show faster growth initially, organic growth of existing businesses is expected to slow over time.
• Policy Risks: Uncertainty around public hospital reform policies and their implementation may affect PHG's operations and profitability.
• Implementation Risks: Local governments may not enforce policies effectively, which could delay or hinder PHG's expansion and growth.

Conclusion

Phoenix Healthcare Group is well-positioned to benefit from the ongoing healthcare reforms in China, leveraging its unique business model and strategic expansion. The company's intrinsic value is estimated at HKD13.5bn, with a target price of HKD16.19, indicating a 24.7% upside. Despite the risks associated with policy implementation and earnings trends, PHG remains a top pick among HK-listed hospital groups due to its strong management and operational track record.