20230222-招银国际-平安好医生-01833.HK-2022_preview__Solid_business_development_through_the_bumpy_2022_5页_1mb

PA Good Doctor (1833 HK) Summary

Core Content

PA Good Doctor (PAGD) is a healthcare services company that has been undergoing a strategic transformation under its Strategy 2.0 Continuum. Despite the challenges posed by the pandemic and the reduction of low-synergy businesses, the company is expected to show resilience and improvement in its financial performance as it transitions to a more sustainable business model.

Main Points

• 2022E Performance:

  • Expected revenue decline of 13.6% YoY to RMB6,335 million.
  • Adjusted net profit is forecasted to narrow to RMB969 million.
  • The company's gross profit margin (GPM) is expected to improve to 27.3% in 1H22 from 23.3% in 2021.
  • Selling & marketing expense ratio is projected to drop to 18.5% in 1H22 from 24.0% in 2021.

• 2023E and 2024E Outlook:

  • Revenue is expected to recover with growth of +23.4% YoY in 2023E and +19.9% YoY in 2024E.
  • GPM is forecasted to increase sequentially to 30.5% in 2023E and 31.8% in 2024E.
  • Adjusted net profit is expected to narrow further to RMB645 million in 2023E and RMB137 million in 2024E.
  • The company is projected to achieve positive net profit from 2025E.

• Strategic Developments:

  • PAGD has made progress in expanding its corporate client base, with 749 corporate clients as of June 2022 (up from 520 in December 2021).
  • It has expanded its service capabilities through the acquisition of Scientia Smart Health Tech in October 2022 for US$97 million, enhancing its smart big data platform, chronic disease management, and doctor and medical institution connections.
  • With the lifting of COVID-related travel restrictions, the company anticipates a return to normal offline corporate customer acquisition in 2023 and beyond.

• Valuation and Investment Recommendation:

  • The target price (TP) remains at HK$28.15, unchanged from the previous estimate of HK$28.40.
  • The analyst maintains a BUY rating, based on a 10-year DCF model with a WACC of 11.1% and a terminal growth rate of 3.0%.
  • The current share price is HK$19.42, with a 45.0% upside to the TP.

Key Financial Highlights

Shareholding and Market Data

• Market Cap (HK$ mn): 22,711.9
• Total Issued Shares (mn): 1,118.8
• Shareholding Structure:
  • Ping An Insurance: 39.4%
  • Sounda Properties: 9.4%

Share Performance

Analyst Ratings

• BUY: Stock with potential return of over 15% over the next 12 months.
• OUTPERFORM: Industry expected to outperform the relevant broad market benchmark.

Disclaimer

• The research is not tailored to individual investors.
• The information is for intended recipients only and may not be reproduced or distributed without prior written consent.
• There are risks involved in trading any securities, and actual events may differ from the report's assumptions.
• The report is not an offer or solicitation to buy or sell any security.
• CMBIGM is not a registered broker-dealer in the United States, and does not provide investment advice.

Summary of Financial Improvements

• Gross Margin: Expected to increase from 27.29% in 2022E to 31.75% in 2024E.
• Operating Margin: Projected to improve from -17.24% in 2022E to -3.34% in 2024E.
• Adjusted Net Margin: Anticipated to improve from -15.29% in 2022E to -1.46% in 2024E.

Conclusion

PA Good Doctor is expected to recover from the temporary revenue decline in 2022E and demonstrate improved profitability in the following years, driven by cost savings, revenue structure optimization, and strategic acquisitions. The company's growth trajectory is anticipated to stabilize and eventually turn positive, supporting the BUY recommendation.