20230403-招银国际-锦欣生殖-01951.HK-Expect_post-pandemic_business_recovery_5页_1mb

Jinxin Fertility (1951 HK) Summary

Core Content and Key Information

Jinxin Fertility is a leading private hospital group in China providing comprehensive IVF services. The company's performance in 2022 was impacted by the negative effects of the pandemic, particularly in its key cities of operation, Shenzhen and Chengdu. Despite this, the company reported a revenue increase of 29% year-over-year (YoY) to RMB2,364 million, but its non-IFRS adjusted net profit dropped by 40% YoY to RMB274 million, missing forecasts due to the pandemic's effect on hospital operations.

Revenue and Profit Trends

• Revenue:

  • FY21A: RMB1,839 million
  • FY22A: RMB2,364 million (+29% YoY)
  • FY23E: RMB2,887 million (+22.1% YoY)
  • FY24E: RMB3,481 million (+20.6% YoY)
  • FY25E: RMB4,181 million (+20.1% YoY)

• Adjusted Net Profit:

  • FY21A: RMB455 million
  • FY22A: RMB274 million (-40% YoY)
  • FY23E: RMB507 million (+84.9% YoY)
  • FY24E: RMB606 million (+19.5% YoY)
  • FY25E: RMB737 million (+21.7% YoY)

• EPS (Adjusted):

  • FY21A: RMB0.10
  • FY22A: RMB0.18
  • FY23E: RMB0.19
  • FY24E: RMB0.22
  • FY25E: RMB0.27

• Adjusted P/E:

  • FY21A: 24.6
  • FY22A: 42.8
  • FY23E: 24.0
  • FY24E: 20.1
  • FY25E: 16.5

Main Points and Outlook

• Post-Pandemic Recovery:

  • With the relaxation of China's pandemic policies at the end of 2022, Jinxin is expected to experience a strong recovery in 2023.
  • The IVF business is anticipated to recover significantly, driven by increased demand and the resumption of operations in Wuhan, along with reorganization efforts in Yunnan.

• IVF Demand:

  • IVF demand is expected to rebound in 2023, as it was delayed rather than eliminated during the pandemic.
  • The company's operations in Chengdu and Shenzhen account for 71% and 73% of total revenue in 2021 and 2022, respectively, highlighting their importance to the company's performance.

• Favorable Government Policies:

  • The Chinese government has introduced policies to stimulate birth rates, including the issuance of Guiding Opinions to support IVF.
  • These policies are seen as a catalyst for growth in the IVF sector, with Jinxin well-positioned to benefit due to its extensive network of hospitals and services.

• International Operations:

  • Jinxin's US operations showed stable revenue in 2022, while HRC's network expanded in California.
  • The reopening of China's borders is expected to boost demand for high-margin international IVF services.

Analyst Recommendations

• Maintain BUY:

  • The target price has been revised from HK$11.25 to HK$9.71, reflecting slower-than-expected revenue and net profit growth in 2023 and 2024.
  • The stock is expected to deliver a return of over 15% over the next 12 months.

• Current Price:

  • HK$5.26
  • 12-month price performance is shown in a chart, indicating a significant drop over the past year.

Financial Highlights

• Growth Rates:

  • Revenue growth is projected to slow down in 2023 and 2024, with estimates at 22.1% and 20.6% YoY, respectively.
  • Adjusted net profit is expected to grow by 84.9%, 19.5%, and 21.7% in 2023E, 2024E, and 2025E, respectively.

• Margins:

  • Gross margin is expected to increase gradually, from 41.00% in 2023E to 42.00% in 2025E.
  • Operating margin is projected to rise from 18.55% in 2023E to 20.59% in 2025E.
  • Net margin is forecasted to remain stable or slightly improve, from 17.56% in 2023E to 17.63% in 2025E.

Valuation and Risk-Adjusted DCF

• DCF Valuation:

  • Equity value is estimated at RMB22,467 million, with a target price of HK$9.71 per share.
  • Terminal growth rate is assumed at 3.0%, with a WACC of 10.1%.

• Valuation Ratios:

  • P/E (adjusted) is expected to decrease from 42.8 in FY22A to 16.5 in FY25E.
  • P/B is projected to decline from 1.3 in FY22A to 1.1 in FY25E.
  • P/CFPS is expected to decrease from 18.7 in FY22A to 13.2 in FY25E.

Shareholding and Market Data

• Market Capitalization: HK$14,312 million
• Average 3-month Turnover: HK$6.5 million
• 52-week High/Low: HK$7.88 / HK$3.59
• Total Issued Shares: 2,720.9 million

Shareholding Structure

• Jinxin Fertility BV: 11.9%
• HRC Investment: 10.7%

Share Performance

• 1-month: -15.7% (Absolute) / -18.2% (Relative)
• 3-month: -27.0% (Absolute) / -29.3% (Relative)
• 6-month: +36.6% (Absolute) / +15.3% (Relative)

Analyst Certification and Disclosures

• The analyst certifies that the views expressed reflect their personal opinions and are not influenced by compensation.
• The analyst confirms no trading in the stock covered in the report within 30 days prior to its issue and will not trade within 3 business days after the report is issued.
• CMBIGM does not provide tailored investment advice and recommends independent evaluation of the information and consultation with a financial advisor.

CMBIGM Ratings

• BUY: Potential return of over 15% over next 12 months
• OUTPERFORM: Industry expected to outperform the market benchmark

Legal and Distribution Notes

• The report is for informational purposes only and not an offer to buy or sell securities.
• It is intended for major US institutional investors and may not be distributed to others without consent.
• In the UK and Singapore, the report is subject to specific distribution restrictions.