20220902-招银国际-锦欣生殖-01951.HK-Resilient_business_amid_COVID_pandemic_5页_1mb

Jinxin Fertility Summary

Core Content and Key Information

Jinxin Fertility (1951 HK) is a company that demonstrated resilience in its business operations despite the challenges posed by the COVID-19 pandemic. The company reported its first-half of 2022 (1H22) financial results, showing a year-over-year (YoY) increase in revenue and net income. However, the earnings slightly missed forecasts, primarily due to the negative impact of outbreaks in Shenzhen and Chengdu.

1H22 Financial Highlights

• Revenue: RMB1,138 million, up 33% YoY
• Attributable Net Income: RMB190 million, up 22% YoY
• Adjusted Non-IFRS Attributable Net Income: RMB261 million, up 18% YoY
• IVF Treatment Cycles: Slightly decreased by 1.8% YoY to 12,930
• Chengdu Revenue Growth: Increased by 71% YoY due to the consolidation of Jinxin Women and Children Hospital (WCH), while excluding WCH, Chengdu's revenue saw single-digit growth
• Shenzhen Revenue Decline: Decreased by 20% YoY due to the impact of the pandemic
• US Market Growth: Revenue from the US increased by 9% YoY, attributed to an increase in IVF treatment cycles, indicating the company's growing presence and capability in the US

Business Synergies and Integration

• Chengdu Synergies: The IVF business and WCH showed strong synergy, with IVF treatment cycles growing 12% YoY and WCH revenue increasing 14% YoY
• Patient Referral: The number of IVF patients directed to WCH increased by 125% YoY, and the number of WCH patients converted to IVF services rose by 108% YoY
• Future Synergy Expectations: The company expects further synergies as business integration progresses and the successful model in Chengdu to be replicated in other regions

Wuhan IVF Business Resumption

• Wuhan Hospital: The IVF business in Wuhan will resume in September 2022, with an expected breakeven point in operating cash flow within the next 12 months
• 1H22 Net Loss: Wuhan hospital reported a net loss of approximately RMB30 million in the first half of 2022

Market Consolidation through Acquisitions

• Jiuzhou Hospital: Stake increased from 5.1% to 96.5%
• Hewanjia Hospital: Stake increased from 5.1% to 96.5%
• Shenzhen Zhongshang Hospital: Stake increased from 79.4% to 99.9%
• New Property in Shenzhen: Expected to significantly expand service capacity and capabilities, with a floor area five times that of the existing hospital and a planned operation start by early 2024
• Greater Bay Area Growth: Targets to grow revenue and operating cash flows by over 300% in five years

Earnings and Valuation

• Earnings Projections:
  • FY22E Revenue: RMB2,536 million (38% YoY growth)
  • FY23E Revenue: RMB3,283 million (29% YoY growth)
  • FY24E Revenue: RMB3,936 million (20% YoY growth)
  • FY22E Adjusted Net Profit: RMB450 million
  • FY23E Adjusted Net Profit: RMB610 million
  • FY24E Adjusted Net Profit: RMB766 million
• Earnings Forecast Adjustments:
  • Revenue: Revised downward by 1.56% in FY22E, -6.92% in FY23E, and -5.84% in FY24E
  • Net Profit: Revised downward by -23.48% in FY22E, -16.12% in FY23E, and -11.30% in FY24E
• Adjusted EPS (RMB):
  • FY22E: 0.15
  • FY23E: 0.21
  • FY24E: 0.27
• Consensus EPS (RMB):
  • FY22E: 0.21
  • FY23E: 0.26
  • FY24E: 0.32
• P/E Ratio (x):
  • FY22E: 29.6
  • FY23E: 21.1
  • FY24E: 16.5
• DCF Valuation:
  • Target Price (HK$): HK$11.73 (down from HK$19.28)
  • WACC: 10.2%
  • Terminal Growth Rate: 4.0%
  • Equity Value (RMB mn): RMB25,105
  • Price per Share (HK$): HK$11.73
• Current Price (HK$): HK$4.87
• 12-Month Price Performance: Down 141% from the target price

Financial Summary

Income Statement (RMB mn)

Balance Sheet (RMB mn)

Cash Flow (RMB mn)

Main Viewpoints

• Resilience Amid Pandemic: Despite the impact of the pandemic on some markets, Jinxin Fertility showed growth in revenue and net profit, demonstrating strong business resilience.
• Synergy in Chengdu: The integration of the IVF business and WCH in Chengdu created significant synergies, with both showing robust YoY growth.
• Market Expansion: The company is actively expanding through acquisitions and new property development, especially in the Greater Bay area.
• Earnings Adjustment: The earnings forecast was revised downward, leading to a significant reduction in the target price, indicating a more conservative outlook.
• Financial Health: The company maintains a relatively healthy financial position with a focus on liquidity and profitability, although there are concerns regarding the accuracy of forecasts and potential market risks.

Key Figures and Growth Projections

• Revenue Growth: Expected to grow by 38% in FY22E, 29% in FY23E, and 20% in FY24E
• Adjusted Net Profit Growth: Projected to grow by -1% in FY22E, 36% in FY23E, and 26% in FY24E
• Gross Margin: Expected to grow from 42.00% in FY22E to 43.00% in FY24E
• Operating Margin: Projected to increase from 20.82% in FY22E to 22.55% in FY24E
• Net Margin: Expected to rise from 15.17% in FY22E to 17.46% in FY24E
• ROE: Projected to increase from 4.3% in FY22E to 6.8% in FY24E

Analyst Recommendations

• Rating: Maintain BUY
• Target Price: HK$11.73
• Downside Risk: 141.0% from current price (HK$4.87)

Analyst Contact

• Jill WU, CFA: (852) 3900 0842, jillwu@cmbi.com.hk
• Benchen HUANG, CFA: huangbenchen@cmbi.com.hk

Disclaimer

The report is prepared by CMB International Global Markets Limited, and is intended solely for information purposes. It is not investment advice and should not be relied upon for making investment decisions. The company may have conflicts of interest due to its market-making activities and investment banking relationships, and the report does not guarantee accuracy or completeness.