Jinxin Fertility Group announced 1H24 revenue of Rmb1.44bn (+8.2% YoY), and net profit of Rmb190m (-15.2% YoY). Its adjusted net profit reached Rmb260m (+1.8% YoY), in line with our expectation. The total number of IVF treatment cycles increased 2.2% YoY to 15,051 in 1H24. Its blended gross margin decreased 1.9ppts YoY to 40.4% in 1H24. Its selling and distribution expense ratio decreased 0.6ppts YoY to 6.0% in 1H24. Considering the delayed demand for ARS due to the potential reimbursement inclusion and the ramp up of new physicians of HRC, we lower our adjusted EPS forecast from Rmb0.20 to Rmb0.18 in 24E, from Rmb0.24 to Rmb0.19 in 25E and from Rmb0.27 to Rmb0.20 in 26E. We lower our target price from HK$4.19 to HK$3.06. With 29% upside, we maintain BUY rating.
Steady business growth in Chengdu and Greater Bay Area. Revenue of Chengdu reached Rmb883m (+8.6% YoY), with Chengdu’s ARS revenue growing 4.0% YoY due to the rising contribution from the VIP services (19.5% in 1H24 vs 16.3% in 1H23) and the 14.9% YoY revenue growth of obstetrics, gynecology and pediatrics business in 1H24. In addition, the number of IVF treatment cycles in Chengdu decreased 4.7% YoY to 7,571 mainly due to the delayed demand for ARS due to the potential inclusion of medical insurance reimbursement for ARS services. In addition, revenue of the Greater Bay Area reached Rmb242m (+10.5% YoY) in 1H24, with the number of IVF treatment cycles increasing 6.7% YoY to 3,022. In addition, the revenue contribution from the VIP services further increased from 7.2% in 1H23 to 7.7% in 1H24. Besides, the combined revenue of Kunming and Wuhan decreased 6.6% YoY to Rmb130m as the revenue decline of the Yunnan hospitals is largely offset by the revenue growth of Wuhan hospital (+43.1% YoY). In addition, the total number of IVF treatment cycles of Kunming and Wuhan reached 2,133 (+1.6% YoY) in 1H24.
Rising affordability with the potential reimbursement inclusion. At present, a total of 19 provinces/municipalities have included the ARS treatment in the medical insurance payment. In addition, Sichuan, Guangdong, Hubei and Yunnan province have issued announcements regarding the inclusion of ARS treatment in the medical insurance payment. Thus, we expect the rising affordability of IVF treatment with the reimbursement inclusion.
Further expansion of overseas business. With the 25.3% YoY growth of the number of IVF treatment cycles in 1H24, the revenue of the overseas business grew 11.5% YoY to Rmb391m. In 1H24, the company continuously to promote the physician recruitment, with at least five new physicians expected to join the HRC in 2024E. In addition, the company further expands its business network in the US with HRC’s core clinic in Beverly Hills currently under construction and expected to commence operations in 1Q25E. In terms of the Southeast Asian market, the clinic in Laos started operations in August 2023. In addition, the company has completed the acquisition of a 30% equity interest in Morula Indonesia, which is one of the largest groups of fertility clinics in Indonesia. Given the growth potentials of the ARS market, the company expects to explore opportunities of self-construction of clinics in the US and potential M&As in Southeast Asia market.
Maintain BUY. Considering the delayed demand for ARS due to the potential reimbursement inclusion and the ramp up of new physicians of HRC, we lower our adjusted EPS forecast from Rmb0.20 to Rmb0.18 in 24E, from Rmb0.24 to Rmb0.19 in 25E and from Rmb0.27 to Rmb0.20 in 26E. We lower our target price from HK$4.19 to HK$3.06. With 29% upside, we maintain BUY rating.
Risks: lower-than-expected growth of overseas business; larger-than-expected price cut of IVF treatment cycle.