We stay positive on Co.’s SOE-hospital consolidation progress and potential M&A opportunities
We believe Co. is a beneficiary of central govt.’s recently pilot program on further deepening the reform of medical service prices
We upgraded to YE22E TP of HKD11.7. Maintain BUY on attractive risk/reward and its good position in reform policies
Expansion mode continues in 2021E
Co. acquired 80% stake of Huaiyin Hospital in Mar. Huayin Hospital is a for-profit tier-II general hospital located in Huai’an City, with an operating capacity of 1,190 beds. Huaiyin Hospital recorded ~RMB50mn FY19 net profit prior to COVID-19 impacts. We reckon Huaiyin Hospital to contribute ~RMB20mn attributable NP in 2H21E (~6-7% of FY20 attributable NP), based on 6-mo consolidation. Further, Co. signed two new OT hospitals, namely Yantai Zifu Hospital (a tier-II hospital w/ 430 beds) and Yuenianhua Nanning Rehabilitation Hospital (w/ a planning of 400 beds). Co. now has extended its footprint across 9 major provinces in China with 107 medical institutions (w/ total of 13k+ beds, o/w 24 tier- II/III hospitals). We believe Co. remained one of the hospital M&A majors, backed by its strong SOE background and an enriched pipeline of CR Health (Co.’s major shareholder, acquired a total of ~10k beds from Liaoning Health Industry Group collaboration in 2019).
Benefit from deepen medical service prices reform
Central govt. recently launched a pilot program on further deepening the reform of medical service prices, aiming to optimize the medical service structure. We expect complex and specialized medical care services likely to be compensated by upward pricing adjustment, at the expense of lower examination and inspection fees. We believe the reform should benefit CR Medical as Co. has highly specialized medical services in TA like trauma and burn care, comprehensive neuromedicine, etc. Meanwhile, we believe Co.’s could achieve operating leverage within its self-owned integrated healthcare systems in well-covered regions (i.e. Co. has 46 varied tiers of medical institution in Beijing).
Maintain BUY, eyeing policy catalyst ahead
We rolled forward to FY22E basis and lifted SOTP-based TP to HKD11.7 from HKD6.8 to reflect improving LT profitability driven by pricing reform tailwind and its continued M&A progress. We think Co.’s current risk/reward remains attractive (21x/18x FY22E/23E PER), versus HK- listed specialty hospital peers (58x-82x FY22E PER). Maintain BUY.