FY21 adj. net profit grew 35% yoy, topped our estimates by 4% thanks to faster-than-expected SOE-hospital consolidation
We believe Co. is well-positioned to pursue M&A growth opportunities for SOE-hospitals and for-profit hospitals
TP lifted to HKD12.1 from HKD11.7. Maintain BUY on attractive risk/reward (9x/8x FY22E/23E PER, 4% FY23E dividend yield)
　　Robust FY21 results
　　FY21 revenue grew 62% yoy to RMB4,447mn and adjusted net profit expanded 35% yoy to RMB418mn, mainly reflecting the consolidation of hospitals assets and receding impacts of COVID-19 pandemic. In FY21, Co. has completed consolidation of four hospitals, including Huaiyin Hospital in Jun, in tandem with Xukuang Hospital, Guangdong 999 Brain Hospital and Huaibei City Mental Health Center in Sep. Co. now has total of 120 medical institutions (total of 12k beds, o/w 6 tertiary hospitals and 15 secondary hospital). Total underlying revenue of these hospitals reached RMB8,274mn in FY21 (vs. RMB6,644mn/ RMB6,869mn in 2020/2019). With pandemic largely receding in 2021, total number of in- patient visits was 282k (up 28% yoy) and total number of out-patient visits was 11mn (up 40% yoy). Meanwhile, average treatment cost per visit remained stable in 2021, reflecting its improved service mix toward operations with higher complexity (number of level 3/4 surgery up 42% to 45k in 2021) offset continuing cost-containment policy headwind.GPM down 2.1ppt largely due to change of scale after hospital consolidations.
　　Still solid M&A appeal
　　Co. stated it’s on track to complete the consolidation of Wugang Hospital in FY22E and expect to acquire another large SOE hospital in the short term. As per CMS estimates, the consolidations of Wugang hospital will enrich company’s adj. earnings by 5% in FY23E. We think Co. remains a key player on the hospital M&A space thanks to its 1) strong SOE background, 2) well-built nationwide footholds, and 3) synergies w/ CR Health (Co.’s major shareholder, has total of ~10k beds) and CR Land (CR group’s property arm, has formed collaboration with Co. on Yuenianhua Rehabilitation Hospital projects).
　　Maintain BUY, SOTP-based TP up to HKD12.1
　　We revised up FY22E/23E adj. earnings by 2%/6% to reflect potential Wugang Hospital consolidation and We thus lifted SOTP-based TP to HKD12.1 from HKD11.7. We think Co.’s risk/reward remains attractive (9x/8x FY22E/23E PER, 4% FY23E dividend yield).