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JINXIN FERTILITY(1951.HK):EYES ON THE PROGRESS OF MEDICAL INSURANCE COVERAGE

招银国际证券有限公司2024-09-02
  Jinxin Fertility (Jinxin) reported 1H24 revenue of RMB1,444mn, up 8.2% YoY, and non-IFRS adjusted net profit of RMB260mn, up 1.8% YoY. Revenue/ non-IFRS adjusted net income represented 45.4%/ 47.7% of our previous full-year forecasts, both of which are in line with its pre-pandemic levels. The number of IVF treatment cycles performed by Jinxin increased by 2.2% YoY to 15,051 in 1H24, which was negatively impacted by the delayed demand for assisted reproductive services (ARS) due to the pending launch of National Medical Insurance (NMI) coverage.
  ARS rapidly covered by NMI. Provinces/ cities in China have acted rapidly to follow Beijing's inclusion of ARS in NMI coverage since Jul 2023, significantly accelerating the pace in 2024. By the end of Sep 2024, 19 provinces/ cities have officially included ARS (the number of services covered varies in each region) in their NMI scheme, with 17 of these did so in 2024. For basic 1-gen/ 2-gen IVF (In vitro fertilization) treatments, costing approximately RMB40k per cycle, NMI typically covers 10-30% of the cost. Some provinces/ cities have included the more costly 3-gen IVF services into their NMI scheme to meet the diverse patient needs. Considering patients' high sensitivity to ARS costs, we believe that the inclusion in NMI can effectively stimulate demand for ARS. All four provinces where Jinxin operates have released drafts related to ARS pricing or NMI coverage for ARS. We expect the official policies to be launched soon, which could immediately promote patients’ demand for Jinxin’s ARS services.
  Despite delayed demand, Jinxin reports modest increase in IVF cycles. Patients in the four provinces where Jinxin operates are postponing ARS treatment in anticipation of NMI coverage, which negatively impacted Jinxin’s operations in 2Q24. Nevertheless, the number of IVF treatment cycles at Jinxin’s network increased by 2.2% YoY in 1H24, primarily driven by the 25.3% YoY growth from its overseas institutions, particularly 64.9% YoY growth in egg freezing services. While mature domestic institutions saw a slight 1.7% YoY decrease in IVF cycles, both revenue and profit recorded favorable growth, buoyed by the Company's integrated service offerings and increasing penetration of VIP services. In 1H24, the number of VIP cycles increased by 17% YoY, significantly exceeding the overall cycle growth. In the US market, we anticipate Jinxin to deliver solid performance due to the resumption of international patient visits and growing local demand. With a strategic investment in an IVF institution in Indonesia in 1H24, Jinxin has further enhanced its global operation network.
  Maintain BUY. We cut our DCF-based TP from HK$4.43 to HK$3.33 (WACC: 10.8%, terminal growth: 2.0%) to reflect the delayed demand for Jinxin’s IVF services. We forecast Jinxin’s revenue to grow 9.2%/ 14.0%/ 14.8% YoY and non-IFRS adjusted net profit to grow 1.1%/ 9.4%/ 13.1% YoY in 2024E/ 25E/ 26E, respectively.

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