20220627-招银国际-医思健康-02138.HK-Expect_strong_recovery_from_COVID_lock-down_in_HK_4页_961kb

EC Healthcare (2138 HK) Company Update Summary

Core Content

EC Healthcare (2138 HK) is a healthcare services provider in Hong Kong, with a focus on medical services, aesthetic medical and beauty wellness services, and other healthcare-related services. The company has experienced significant growth in revenue and net profit over the past financial years, with some challenges due to the impact of the fifth wave of the COVID-19 outbreak in Hong Kong.

Key Financial Highlights

• Revenue:

  • FY21A: HK$2,080 million
  • FY22A: HK$2,920 million (+40% YoY)
  • FY23E: HK$3,806 million (+30% YoY)
  • FY24E: HK$4,860 million (+28% YoY)
  • FY25E: HK$6,038 million (+24% YoY)

• Net Profit:

  • FY21A: HK$193 million
  • FY22A: HK$198 million (+20% YoY)
  • FY23E: HK$418 million
  • FY24E: HK$588 million
  • FY25E: HK$804 million

• EPS:

  • FY21A: HK$0.19
  • FY22A: HK$0.17
  • FY23E: HK$0.35
  • FY24E: HK$0.50
  • FY25E: HK$0.68

• P/S Ratio:

  • FY21A: 4.5x
  • FY22A: 3.2x
  • FY23E: 2.4x
  • FY24E: 1.9x
  • FY25E: 1.5x

• P/E Ratio:

  • FY21A: 42.0x
  • FY22A: 46.1x
  • FY23E: 22.2x
  • FY24E: 15.8x
  • FY25E: 11.6x

• ROE:

  • FY21A: 16.1%
  • FY22A: 13.6%
  • FY23E: 20.7%
  • FY24E: 26.2%
  • FY25E: 31.3%

• Net Gearing:

  • FY21A: Net cash
  • FY22A: Net cash
  • FY23E: 2.23%
  • FY24E: 1.05%
  • FY25E: Net cash

Main Viewpoints

• Recovery from Lockdowns:

  • EC's FY22 revenue was in line with expectations, but attributable net profit missed forecasts due to the impact of the fifth wave of the pandemic on its beauty and wellness business.
  • The company experienced 84 days of compulsory closure in 4QFY22 and 20 days in 1QFY23, but management expects a strong recovery in FY23E with a projected 14% YoY sales volume increase.
  • The expectation is that the Hong Kong government will avoid extreme measures in the future, supporting a positive outlook for business recovery.

• M&A Strategy:

  • EC has been actively pursuing mergers and acquisitions to expand its healthcare services and become a one-stop provider.
  • M&A activities during FY22 totaled HK$717 million, with notable acquisitions in the dental and veterinary sectors.
  • Key acquisitions include a 55% stake in Bayley & Jackson Dental Surgeons for HK$129 million and investments to bring more veterinary brands into its network.
  • The company also agreed to invest up to HK$275 million for a 30% stake in a hospital-grade medical building in Tsim Sha Tsui, expected to open in 2025.

• Balance Sheet:

  • As of end-FY22, EC had HK$167 million in net cash.
  • The company maintains a strong balance sheet, providing room for further M&A and expansion.

Key Information

• Target Price: HK$13.90 (Previously HK$22.40)
• Current Price: HK$7.89
• 12-Month Price Performance: Not provided, but the stock has shown mixed performance over different timeframes.
• Shareholding Structure:
  • Management: 65.08%
  • Goldman Sachs: 5.50%
  • Others: 29.42%
• Market Capitalization: HK$9,297 million
• Auditor: KPMG

Valuation and Forecast

• DCF Valuation:
  • Based on a 10-year model with a WACC of 11.1% and terminal growth rate of 2.0%, the target price was revised downward to reflect margin pressures and diversification.
• FCFF:
  • FY23E: HK$71 million
  • FY24E: HK$383 million
  • FY25E: HK$642 million
  • Terminal Value: HK$27,672 million

Investment Recommendation

• Maintain BUY:
  • The stock is expected to deliver a return of over 15% over the next 12 months.
  • The analyst believes the company's recovery and M&A strategy will drive growth.

Financial Summary

• Cash Flow:
  • Net cash from operating activities is expected to increase significantly in FY23E and FY24E.
  • Capital expenditures and other investing activities are also anticipated to rise, with net cash from investing activities showing a decline in FY23E but stabilization in subsequent years.
• Balance Sheet:
  • Total net assets are projected to grow from HK$2,351 million in FY22A to HK$3,361 million in FY25E.
  • The company's current ratio remains stable at around 1x, indicating strong liquidity.

Key Ratios

• Gross Margin: Expected to increase from 88% in FY22A to 90% in FY25E.
• EBITDA Margin: Projected to rise from 27% in FY22A to 32% in FY25E.
• Net Margin: Expected to increase from 9% in FY22A to 16% in FY25E.
• ROE: Projected to increase from 13.6% in FY22A to 31.3% in FY25E.

Analyst Certification and Disclaimers

• The analyst certifies that the views expressed reflect personal opinions and are not influenced by compensation.
• No trading in the stock was conducted by the analyst or their associates within 30 days prior to the report.
• The report is not an offer or solicitation to buy/sell securities.
• The information is based on publicly available data and may be subject to change.
• CMBIGM is not liable for any losses or damages arising from reliance on the report.
• The report is intended for specific investors and may not be distributed to others without consent.

Risk Disclaimer

• There are risks involved in trading any securities.
• Past performance does not guarantee future results.
• Actual events may differ materially from those in the report.
• The value and returns of investments are uncertain and may fluctuate due to market conditions and other factors.

CMB International Global Markets Limited

• A subsidiary of CMB International Capital Corporation Limited, which is a subsidiary of China Merchants Bank.
• Based in Hong Kong with contact details provided.

Legal and Distribution Notes

• The report is subject to legal and distribution restrictions in the UK, US, and Singapore.
• In the UK, the report is only for individuals falling within Article 19(5) of the Financial Services and Markets Act 2000.
• In the US, the report is only for major US institutional investors.
• In Singapore, the report is distributed by CMBI (Singapore) Pte. Limited, an exempt financial adviser.

Conclusion

EC Healthcare is positioned for strong recovery in FY23E following the easing of lockdown measures in Hong Kong. Its M&A strategy and expansion into various healthcare services are key growth drivers. The company maintains a healthy balance sheet and is expected to deliver improved financial performance in the coming years. The BUY recommendation is based on the company's recovery potential and strategic initiatives.