Hygeia’s 2023 revenue grew 27.6% YoY to RMB4.08bn, in line with BOCI estimate. Oncology-related business increased by 23.6% YoY to RMB1.78bn, accounting for 43.6% of revenue (vs.45% in 2022). Non- IFRS adjusted net profit increased by 17.5% YoY to RMB713.4m. Hygeia has ~10,000 available beds by YE23 and the management expects a total of 14,000 available beds by YE25. In 2M24, the revenue grew by 40+% YoY thanks to the normalised operation and the management is confident in beating previous guidance. Maintain target price of HK$47 and BUY rating.
Key Factors for Rating
2023 results in line: Hygeia reported 2023 results with revenue up 27.6% YoY (or 34.0% YoY after excluding the impact of nucleic acid tests) to RMB4.08bn, in line with our estimate. The revenue from inpatient/outpatient service increased by 31.6%/23.1% YoY. Oncology-related business increased by 23.6% YoY to RMB1.78bn, accounting for 43.6% of revenue (vs.45% in 2022). The net profit was RMB684.9m, up 42.1% YoY (or 63.6% after excluding the impact of the nucleic acid tests). Non-IFRS adjusted net profit increased by 17.5% YoY to RMB713.4m, or 31.1% YoY after excluding impact of the nucleic acid tests. As of YE23, Hygeia has ~10,000 available beds and the management expects a total of 14,000 available beds by YE25.
Confidence in beating guidance on promising operation in 2M24: The revenue grew by 40+% YoY in the first two months of 2024, thanks to normalised operation post COVID, continuously ramp-up of Chongqing phase II and Shanxian phase II, and consolidation impact of Chang’an Hospital, Yixing Hygeia and Qufu Chengdong Hospital. Given the favourable performance, the management is highly confident in beating previous revenue guidance of 25% YoY growth in profits in 2024.
Fast ramp-up of newly acquired hospitals and phase II projects: Yixing Hygeia and Chang’an Hospital recorded a 30.8% YoY and 28.9% YoY growth of revenue in 2023 after the consolidation, and maintained the strong momentum in 2024 YTD, with average daily inpatients reaching 400+ (vs. 200+ upon consolidation) and 1,200 (vs. 800-900 upon consolidation) in March, respectively. Chongqing Hygeia saw 70%+ YoY and 20%+ YoY growth in outpatient and inpatient visits in 2023, respectively, thanks to its upgrade to Class III general hospital. The management expects the margin of Chongqing Hygeia to recover to the level before the opening of Phase II (GPM: c.35%) in 2H24.
Key Risks for Rating
(i) Changes in regulatory regime for the healthcare services industry; (ii) worse- than-expected impact from DRG/DIP rollouts; and (iii) unable to construct and run new self-built hospitals in a highly efficient way.
Valuation
Post result, we slightly lift our 2024/25 revenue forecast by 1% to factor in the strong sales momentum in 2M24. Maintain BUY rating and 12-month DCF-based target price of HK$47 (WACC: 10.3%, terminal growth 3.0%).
Updates on self-built hospital and phase II projects: (i) Dezhou Hygeia (1,000 beds) has passed acceptance inspection as a Class III general hospital in March 2024; Wuxi Hygeia (800 to 1,000 beds) is expected to finish construction and commence operations at the beginning of 2025; (iii) Changshu Hygeia (800 to 1,200 beds) is expected to finish construction and commence operations at the end of 2025. (iv) Kaiyuan Jiehua Phase II (500 beds) / Hezhou Guangji (additional 500 beds) Phase II has obtained the construction project approval; and (v) Chang’an Phase II (additional 1000 beds)/ Suzhou Yongding Hospital Phase II (additional 500 beds) is applying for regulatory approval for construction.