20211021-招银国际-锦欣生殖_五百_-01951.HK-Significant_synergies_with_the_OB_GYN___pediatrics_business_6页_1mb

Jinxin Fertility (1951 HK) Company Update Summary

Core Content

Jinxin Fertility (1951 HK) has announced the acquisition of a 100% stake in Sichuan WCH, a leading private OB/GYN and pediatrics hospital in China. The total consideration is RMB3.0bn, with 50% paid in cash and 50% in a convertible bond with a 0.75% coupon rate and a conversion price of HK$15.00 per share, which is a 20% premium over the closing price on 19 October. The transaction is expected to be completed before the end of 2021 and is anticipated to be significantly EPS accretive. As a result, the target price (TP) has been revised upwards from HK$22.72 to HK$25.44, representing a +91.88% upside from the current price of HK$13.26.

Key Information

• Acquisition Details:

  • Target: Sichuan WCH (largest standalone private medical institution in China for OB/GYN & pediatrics).
  • Total consideration: RMB3.0bn.
  • Payment structure: 50% cash, 50% convertible bond.
  • Conversion price: HK$15.00 (20% premium over 19 Oct closing price).
  • Expected completion: Before end of 2021.
  • EPS accretion: Significant.
  • Revised TP: HK$25.44 (from HK$22.72).

• Sichuan WCH Overview:

  • Revenue in 1H21: RMB225.0mn (+22% YoY).
  • Net profit in 1H21: RMB46.9mn (+168% YoY).
  • Management guarantee: Net profit above RMB100mn for FY21E and RMB130mn for FY22E.
  • PE multiples: ~30x for FY21E, ~23x for FY22E.
  • Birth volume in Chengdu: ~10% of total.
  • IVF-treated newborns: Expected to deliver 1,100 in 2021.
  • Co-CEO: Duan Tao, former president of Shanghai First Maternity and Infant Hospital Affiliated to Tongji University.

Main Viewpoints

• Synergies with OB/GYN & Pediatrics Business:

  • Integration of ARS and OB/GYN services.
  • Enhanced customer loyalty and lifetime value.
  • Cost efficiencies through economies of scale.
  • Strong brand awareness improves bargaining power with supply chain.
  • Expansion of ARS hospital network via self-built or acquired hospitals.

• Strategic Implications:

  • Jinxin plans to replicate its successful Chengdu model in other regions.
  • Continued geographic expansion.
  • Revised adjusted net profit estimates: +0% for FY21E, +16% for FY22E, +15% for FY23E.

• Financial Performance:

  • Revenue growth: 31% in FY21E, 59% in FY22E, 24% in FY23E.
  • Net profit growth: 30% in FY21E, 80% in FY22E, 30% in FY23E.
  • EPS growth: 30% in FY21E, 80% in FY22E, 30% in FY23E.
  • P/E ratio: 80.5x (FY21E), 44.7x (FY22E), 34.4x (FY23E).
  • P/B ratio: 3.1x (FY21E), 2.9x (FY22E), 2.7x (FY23E).
  • ROE: 4.2% (FY21E), 6.7% (FY22E), 8.1% (FY23E).

Share Performance

• 1-month return: -0.3% (absolute), -3.7% (relative).
• 3-month return: -21.5% (absolute), -16.3% (relative).
• 6-month return: -33.5% (absolute), -24.9% (relative).
• 12-month price performance: Chart available (Source: Bloomberg).

Shareholding Structure

• Management: 26.02%.
• Warburg Pincus: 18.36%.
• HRC Physician: 14.82%.
• Other institutional investors: 22.58%.
• Employee holdings: 1.35%.
• Public shareholders: 16.87%.

Key Ratios

• Sales mix:
  • ARS: 70.2% (FY21E).
  • Management fee: 25.2% (FY21E).
  • Ancillary services: 4.6% (FY21E).
• Profit & loss ratios:
  • Gross margin: 43% (FY21E).
  • EBITDA margin: 31% (FY21E).
  • Pre-tax margin: 25% (FY21E).
  • Net margin: 18% (FY21E).
• Balance sheet ratios:
  • Current ratio: 2x (FY21E).
  • Trade receivables turnover days: 5 days (FY21E).
  • Trade payables turnover days: 24 days (FY21E).
  • Net debt to total equity ratio: Net cash.

CMBIS Ratings

• BUY: Stock with potential return of over 15% over next 12 months.
• HOLD: Stock with potential return of +15% to -10% over next 12 months.
• SELL: Stock with potential loss of over 10% over next 12 months.
• NOT RATED: Stock not rated by CMBIS.
• OUTPERFORM: Industry expected to outperform the relevant broad market benchmark.
• MARKET-PERFORM: Industry expected to perform in-line with the relevant broad market benchmark.
• UNDERPERFORM: Industry expected to underperform the relevant broad market benchmark.

Valuation and Financial Summary

• DCF Valuation:
  • Terminal value: RMB39,619mn.
  • Terminal growth rate: 3.0%.
  • WACC: 9.5%.
  • Equity value: RMB52,955mn.
  • Price per share (HK$): HK$25.44.
• Earnings Revision:
  • Revenue: +4% for FY21E, +32% for FY22E, +33% for FY23E.
  • Gross profit: +6% for FY21E, +37% for FY22E, +34% for FY23E.
  • Adjusted net profit: +25% for FY21E, +42% for FY22E, +39% for FY23E.

Risk and Disclaimer

• The report contains risks and is not suitable for all investors.
• CMBIS does not provide individually tailored investment advice.
• Past performance is not indicative of future results.
• Information is based on publicly available data and may not be accurate or complete.
• The report is for informational purposes only and should not be construed as an offer or solicitation to buy or sell securities.
• CMBIS is not a registered broker-dealer in the U.S., Singapore, or the U.K. and may have conflicts of interest.