20230106-招银国际-医思健康-02138.HK-HK-Mainland_border_reopening_to_revive_cross-border_medical_consumption_5页_1mb

EC Healthcare (2138 HK) Summary

Core Content

EC Healthcare (2138 HK) is a healthcare company that has experienced significant revenue growth and is expected to benefit from the reopening of the HK-Mainland border. The company has diversified its service portfolio through a series of M&A activities, enhancing its ability to capture cross-border medical consumption.

Key Financial Highlights

• Revenue (FY1H23): HK$1,893 million, up 31% YoY.
• Consumer Medical Revenue (FY1H23): Declined by 2% YoY, primarily due to store closures in April and regulatory headwinds.
• Sales Volume Recovery: Continued recovery in sales volume, up 21% in FY1Q23 and 11% in FY2Q23, following a 19% QoQ decline in FY4Q22 due to lockdowns.
• Expected Revenue Growth:
  • FY23E: HK$3,884 million (33.0% YoY growth)
  • FY24E: HK$5,036 million (29.7% YoY growth)
  • FY25E: HK$6,133 million (21.8% YoY growth)
• Net Profit (FY23E): HK$260 million (31.9% YoY growth)
• Net Profit (FY24E): HK$543 million (108.5% YoY growth)
• Net Profit (FY25E): HK$811 million (49.3% YoY growth)
• EPS (Reported):
  • FY23E: HK$0.22
  • FY24E: HK$0.46
  • FY25E: HK$0.69
• Consensus EPS:
  • FY23E: HK$0.19
  • FY24E: HK$0.32
  • FY25E: HK$0.44
• P/E Ratio:
  • FY23E: 38.1
  • FY24E: 18.3
  • FY25E: 12.2
• Dividend Yield:
  • FY23E: 2.1%
  • FY24E: 4.1%
  • FY25E: 6.1%

Market and Strategic Outlook

• Border Reopening Impact: The HK-Mainland border reopened officially on 8 Jan 2023, which is expected to boost cross-border medical services, especially consumer medical.
• Consumer Medical Recovery: Revenue from consumer medical services is forecasted to grow by 17% in FY23, 40% in FY24, and 25% in FY25 YoY.
• M&A Strategy: ECH has executed M&A deals worth HK$641 million in FY22 and HK$219 million in FY1H23, expanding into specialized services like dental, medical imaging, and veterinary.
• Service Diversification: Previously focused on consumer medical (71% of revenue in FY19), ECH now offers more specialized services, enhancing its market position.

Valuation and Investment Recommendation

• Target Price (TP): HK$11.02 (raised from HK$10.34), based on a 10-year DCF model with a WACC of 11.8% and terminal growth of 2.0%.
• Current Price: HK$8.40
• Upside Potential: 31.2% (from current price to TP)
• DCF Valuation (2023E): HK$13,743 million
• Equity Value (2023E): HK$13,016 million
• Analyst Recommendation: BUY

Shareholding and Stock Data

• Market Cap: HK$9,922.4 million
• Average 3-Month Turnover: HK$5.7 million
• 52-Week High/Low: HK$10.36 / HK$3.98
• Total Issued Shares: 1,181.2 million
• Shareholding Structure:
  • Tang Chi Fai: 61.2%
  • Goldman Sachs: 5.5%

Share Performance

• 1-Month Return: 36.4% (Absolute) / 26.4% (Relative)
• 3-Month Return: 67.7% (Absolute) / 44.1% (Relative)
• 6-Month Return: 8.9% (Absolute) / 13.1% (Relative)

Financial Ratios and Metrics

• Gross Margin:
  • FY23E: 87.20%
  • FY24E: 88.80%
  • FY25E: 89.50%
• Operating Margin:
  • FY23E: 11.24%
  • FY24E: 16.59%
  • FY25E: 19.78%
• Net Margin:
  • FY23E: 6.71%
  • FY24E: 10.79%
  • FY25E: 13.23%
• ROE:
  • FY23E: 13.7%
  • FY24E: 27.1%
  • FY25E: 37.4%

Key Risks and Disclaimers

• Investment Risks: There are inherent risks in securities trading, and past performance does not guarantee future results.
• Conflicts of Interest: CMBIGM may have conflicts of interest due to its market-making activities or investment banking relationships.
• Disclaimer: This report is not investment advice and should not be construed as an offer to buy or sell securities. Investors are encouraged to consult with a financial advisor before making investment decisions.

Analysts and Ratings

• Analysts:
  • Jill WU, CFA
  • Benchen HUANG, CFA
• Ratings:
  • BUY: Stock with potential return of over 15% over next 12 months
  • OUTPERFORM: Industry expected to outperform the relevant broad market benchmark over next 12 months

Additional Notes

• The report includes detailed financial statements and forecasts, covering income, balance sheet, and cash flow data.
• CMBIGM provides valuations based on DCF models, with assumptions and estimates that may vary.