3Q20 operating income grew to RMB6,438mn （up 35% yoy）， driven by leasing biz recovery and hospital business consolidation
SOE-hospitals consolidation remains on track, w/ a target of 30k beds in 25E （Co. so far inked a total of hospital assets of 15k beds）
We revised up SOTP-based TP to HKD9.2. Maintain BUY on strong SOE-hospital execution, decent FY20/21E div yld （7%/8%）Finance and advisory drive 3Q20 bottom line recovery9M20 operating income grew 29% yoy and reported profit return to 9% positive growth （vs. -1% yoy in 1H20）。 The bottom line growth recovery is mainly driven by finance and advisory business back on rail, in 3Q20 thanks to 1） business development activities start resuming amid COVID-19 outbreak ebbed in China; 2） continuously improvement in NIM （+1bps/+9bps in YE20E vs. 1H20/YE19, as per our est.） and NIS （+10bps/+7bps）， with robust risk management on asset quality; 3） 9M20 average funding cost decreased, helped by effective financing management through various financing instruments. We think Co. is still competitive with its rare AAA credit rating among domestic peers and to sustain a low-teen growth in finance and advisory business over 2021E/22E.
On track with SOE-hospitals consolidation progressCo. has consolidated hospital revenue of c.RMB1.5bn in 1H20 （vs. ~RMB724mn in 1H19）， including 29 SOE hospitals with c.9,000 beds.
Mgmt. stated the remaining of contracted SOE hospital assets with c.6,000 beds are on track towards consolidation. Mgmt. also sees hospitals returning to normal steadily with increase of total patient visits as outbreak abates. Co. targets to achieve a capacity of 30,000 beds by 2025E and guided a long-term net margin improvement goal （8-10% from current 3-4%）。
Maintain BUY on clear external growth opportunityWe revised up Co’s FY20E/21E earnings by 3%/1% to reflect the 1） finance and advisory recovery in 3Q20; and 2） continued external growth opportunity from SOE-hospital consolidation. We rolled forward to 21E basis and lift SOTP-based TP to HKD9.2 from HKD8.5. Maintain BUY.