20160408-法国巴黎银行-华润凤凰医疗-01515.HK-Forging_China_s_No_1_hospital_group_11页_425kb

PHOENIX HEALTHCARE (1515 HK) Summary

Core Content

Phoenix Healthcare is a leading private hospital operator in China, with the potential to become the largest hospital group in the country following its announced acquisition of CR Healthcare's hospital assets. The deal, valued at HKD3,722 million, is expected to combine Phoenix's existing assets with CR Healthcare's 35 hospitals, 3 senior care institutions, 12 community healthcare centres, and approximately 6,000 beds, resulting in a combined group of 53 hospitals, 54 community medical centres, and 11,780 beds.

Main Viewpoints

• Strategic Acquisition: The acquisition is a significant move that positions Phoenix as the largest hospital group in China and establishes a nationwide tiered healthcare network.
• Valuation: The deal is valued at RMB0.5 million per bed, which is considered attractive compared to recent hospital transaction multiples.
• Share Price Impact: The proposed deal is expected to have a positive impact on the share price, with a theoretical value of HKD13.9 per share, close to the target price of HKD13.80.
• Investor Concerns: The deal is seen as a potential resolution to scalability and founder succession concerns, which have previously weighed on Phoenix's stock price.
• Valuation Multiples: Phoenix is currently trading below its Chinese and ASEAN hospital peers on a P/E and EV/EBITDA basis, despite strong projected growth.

Key Information

Target Price and Performance

• Target Price (TP): HKD13.80
• Current Close: HKD9.10
• Upside from Close: +51.6%
• Change in TP: Unchanged
• Recurring EPS (2016E): RMB0.35
• Recurring EPS (2017E): RMB0.43
• Recurring EPS (2018E): RMB0.59

Deal Structure

• Financing: Phoenix will issue 463 million new shares to CR Healthcare at HKD8.04, a 12% discount to the close price before suspension.
• Ownership Post-Acquisition:
  • CR Healthcare: 35.7%
  • Phoenix Founder Family: 16.1%
  • Phoenix Management: 5.9%
• Board Representation:
  • CR Healthcare: 4 seats
  • Phoenix: 3 seats

Financial Highlights

Catalysts for Growth

• Validation of More Acquisitions in Baoding: Expected in 2016-2017, which could enhance Phoenix's growth trajectory.
• Removing Large Shareholder/PE Overhang: The deal could address concerns around management succession and scalability.

Risks to Consider

• Slower-than-Expected Hospital Acquisitions
• Malpractice/Reputational Risk
• Early Termination of IOT Agreements
• Existing Hospitals Portfolio Ex-Growth Earlier than Expected

Company Background

Phoenix Healthcare operates a network of 13 general hospitals, 2 specialist hospitals, and 42 community clinics in Beijing, with a total of 5,780 beds under its control as of 2015.

Key Executives

Financial Strength

• Net Debt/Equity (%): -54.4 (2015A), -53.7 (2016E), -50.4 (2017E), -51.4 (2018E)
• Current Ratio (x): 4.7 (2014A), 3.3 (2015A), 3.6 (2016E), 3.6 (2017E), 4.0 (2018E)
• Book Value per Share (RMB): 1.99 (2014A), 2.14 (2015A), 2.42 (2016E), 2.79 (2017E), 3.29 (2018E)
• Tangible Book Value per Share (RMB): 1.55 (2014A), 1.64 (2015A), 1.73 (2016E), 1.81 (2017E), 2.08 (2018E)

Valuation Rationales

• CR Healthcare Assets: Valued at RMB1m per bed, assuming they are not IOT assets.
• Legacy Phoenix Business: Valued at 23x forward PE, based on 2016-17E earnings reacceleration.
• Combined Valuation: Theoretical value of HKD13.9 per share, incorporating a 20% premium due to the resolution of scalability and succession concerns.

Event Calendar

• Interim Results: August 2016
• FY16 Results: March 2017

Key Assumptions

Conclusion

Phoenix Healthcare's acquisition of CR Healthcare's hospital assets is a strategic move that could significantly enhance its market position and financial performance. The deal is expected to result in a nationwide healthcare network and address investor concerns regarding scalability and management succession. The valuation appears attractive, with a target price of HKD13.80 and a theoretical value of HKD13.9 per share, reflecting the potential for re-rating upside. The combined group is projected to have strong financial metrics, with a focus on revenue growth and profitability. The deal requires approval from Phoenix's AGM and the HKEX, and its success will be closely monitored.