Revenue increased by 17% YoY to RMB1.33bn in 1H23, in line with consensus and BOCIe. The number of IVF cycles recovered by 14% YoY to 14,731. GPM climbed by 1.5ppts YoY while Opex ratio was largely flatted. Net profit was up by 19% YoY to RMB224m and management maintained FY23 guidance of 20% YoY growth in topline and normalised net profit of RMB500m unchanged. The company saw inclusion of reimbursement and permission to egg freezing as key near-term catalysts amid China’s weak macro, and SEA market may provide some M&A opportunities. We tune down our 12-month TP to HK$7.3. Reiterate BUY.
　　Key Factors for Rating
　　1H23 results in line: JXR delivered 1H23 results amid weak macro environment. Revenue increased by 17% YoY to RMB1.33bn, in line with market consensus and BOCIe, with Chengdu/ Shenzhen/ Wuhan/ Hong Kong/ US business recorded YoY changes of -2%/ +14%/ +152%/ +16%/ +21%, respectively. Total number of IVF cycles recovered by 14% YoY to 14,731 with success rate up by 2.1ppts YoY to 57.1% in HQ Hospitals in China. GPM climbed by 1.5ppts YoY thanks to 1) strong recovery in US operations, and 2) cost optimisation from integration of Jinxin Xi’nan Hospital and Jinxin Women and Children Hospital. Opex ratio remained flat as rise in S&M expense was offset by reduction in admin expenses. Net profit was up by 19% YoY to RMB224m while normalised NP was down by 1% YoY if adjusted for Wuhan loss and other one- off expenses. The management maintained its FY23 full-year guidance of 20% YoY topline growth and normalised net profit of RMB500m unchanged given (1) on-track results, (2) more interest expense and less government grants in 2H23, and (3) slower-than-expected policies rollout.
　　Eyes on favourite policies to be rolled out in more provinces. Jinxin deems inclusion of medical insurance reimbursement scope and permission to oocyte cryopreservation as key short-term catalysts in IVF industry. The management shared that Beijing and Shenyang have included ARS in the reimbursement list and the IVF cycles have grown by 10+% in Beijing. Per management, Sichuan and Guangdong are also preparing for policy rollout and the management expects more positive impacts in Sichuan than in Beijing given higher price sensitivity in Sichuan. In the long term, the management deem the growth of IVF relies on the expansion from infertility treatment to eugenics services (3rd IVF).
　　Valuation
　　We fine-tuned our 2023/24/25E topline by -2%/+1%/+1% and revised up GPM to factor in faster-than-expected recovery of US business, the soon commencement of Jinrui Medical Center and cost optimisation from procurement. We slightly nudged up selling expense ratio due to higher-than- expected marketing expense in Yunnan operations while revising down admin expenses ratio. Updated RMB/HKD FX rate to 1.12 and revised down our 12- month TP to HK$7.3 (WACC of 10.0% and terminal growth of 3% unchanged).
　　Maintain BUY.
　　Key Risks for Rating
　　1) Price cuts on ARS; 2) intensified competition in ARS industry; 3) slower-than- expected policy rollout on ARS industry; 4) inefficient consolidation of new acquired hospitals; 5) limited suitable M&A targets in China.