20140212-招商证券_香港_-华润凤凰医疗-01515.HK-高成长潜力_价值仍属低估_首次覆盖建议买入_14页_963kb

Investment Thesis Summary

Core Content

Phoenix Healthcare Group (PHG) is a private hospital operator in China with a strong growth potential, driven by its leading market positioning, seasoned management team, and unique business model. The investment thesis recommends buying the stock with a target price of HKD16.60, based on the belief that PHG is well-positioned to capture growth opportunities in the emerging public hospital reform market.

Main Points

• Growth Strategy: PHG plans to grow its revenue at a 22% CAGR and net income at a 40% CAGR from FY13E to FY16E through a three-pronged approach:

  • Organic Growth: Increasing patient volume and service offerings.
  • Equity Acquisitions: Mainly public hospitals.
  • Operation Efficiency: Through an integrated business model.

• Market Positioning: PHG is the largest private hospital group in China by bed capacity and patient visits in 2012. It operates in the fast-growing Beijing healthcare market, which is at the forefront of China's public hospital reform.

• Market Share and Growth Potential: In 2012, PHG held only 3.4% of the beds in operation in Beijing, which is a relatively small market share given the city's 1.8% share of China's total beds. This implies significant growth potential as the government aims to increase private hospital market share to 20% by 2015.

• Business Segments:

  • General Hospital Services: Constitutes the largest portion of PHG's revenue (51% in 1H13; 43% for FY14E).
  • Hospital Management Services: Smaller but growing, with a high gross margin.
  • Supply Chain Business: Also a significant revenue source, with a growing contribution and higher gross margin.

• Gross Profit Mix:

  • General Hospital Services: 43% in 1H13E, 31% for FY14E.
  • Hospital Management Services: 8% in 1H13E, 13% for FY14E.
  • Supply Chain Business: 49% in 1H13E, 57% for FY14E.

• Valuation and Target Price:

  • The 12-month target price is based on a 0.7x PEG with 80% FY14E net profit growth.
  • This is considered reasonable compared to US-listed peers but still at a 50% discount to China A-share names.
  • The target price of HKD16.60 is seen as undervalued relative to its growth prospects.

Key Risks

• Announcements and implementation of macro policies related to China's public hospital reform.
• Changes in the NDRL drug reimbursement policy.
• Execution risks in M&A and IOT deals.
• Business integration risks.

Business Overview

PHG has a relatively small and young hospital portfolio, with only one self-owned hospital and 11 managed hospitals under IOT agreements. The company has a strong growth profile and is well-positioned to benefit from the growth of the private hospital sector in China, particularly in Beijing.

Growth Propositions

• M&A and Equity Acquisitions: PHG aims to expand its hospital network through acquisitions, leveraging its capital from a recent IPO.
• IOT Model: PHG uses the IOT model to manage hospitals with a 20-year contract that includes a 3-5% fee of revenue and a 40-60% profit share. This model allows for significant profit potential with limited initial investment.
• Supply Chain Services: PHG offers cost-efficient supply chain services that cut middlemen and allow for better pricing through centralized procurement.

Financial Highlights

• Revenue Growth: Expected to grow from RMB 966 million in FY13E to RMB 1,430 million in FY15E.
• Gross Profit Margin: Blended GM is expected to remain around 25%.
• Operating Efficiency: PHG is focusing on improving ALOS (Average Length of Stay) to increase bed turnover and operational efficiency.
• IPO Impact: The recent successful IPO is expected to support PHG's expansion and M&A activities.

Business Integration and Expansion

• Integration Timeframe: Business integration of new IOT hospitals with PHG's network is expected to take 1-2 years.
• Expansion Progress: As of June 30, 2013, PHG operates 12 hospitals and 28 community clinics, with 3,213 beds in operation. The company expects expansion to accelerate from 2014-2015.

Market Analysis

• Beijing Market:
  • Total patient volume grew at a faster rate than China overall (13% for outpatient, 14% for inpatient).
  • Average spending per patient is significantly higher in Beijing than in China as a whole (RMB 384 for outpatient, RMB 17,495 for inpatient in 2012).
• Public Funding: Beijing's public funding per capita is much higher than that of China as a whole, indicating a more developed healthcare infrastructure.

Summary of Key Figures

• PHG's Hospital Portfolio:

  • Total number of hospitals: 12
  • Total number of community clinics: 28
  • Total beds in operation: 3,213
  • Total patient visits (2012): 3,049.7 thousand

• Target Price Justification:

  • Based on a 0.7x PEG with 80% FY14E net profit growth.
  • Undervalued compared to China A-share names.
  • Strong growth potential and favorable market conditions.

• Market Share:

  • PHG holds 3.4% of the beds in Beijing in 2012.
  • Beijing makes up 1.8% of China's total beds.

• Growth Potential:

  • PHG is expected to double its bed count to 60 million by 2016.
  • The company has a strong potential to capture growth in the private hospital market, especially in Beijing.

Conclusion

PHG's strategic positioning, growth potential, and unique business model make it a compelling investment opportunity. The company is well-positioned to benefit from the ongoing public hospital reform in China, particularly in Beijing, where it has a significant first-mover advantage. With a target price of HKD16.60, PHG is seen as undervalued, offering a good entry point for investors looking to capitalize on the growth of the private hospital sector.