Hygeia Health announced 1H24 revenue of Rmb2.38bn (+35.4% YoY), and net profit of Rmb385m (+15.1% YoY). Its adjusted net profit reached Rmb401m (+15.6% YoY), in line with our expectation. Its blended gross margin decreased 0.68ppts YoY to 31.8% in 1H24, with the gross profit of hospital business remaining stable at 31.1% (vs 31.2% in 1H23). Given the ramp up of new hospitals and acquired hospitals, we lower adjusted EPS forecast from Rmb1.45 to Rmb1.40 in 24E, from Rmb1.83 to Rmb1.63 in 25E and from Rmb2.24 to Rmb1.93 in 26E. We lower our target price from HK$43.0 to HK$31.9. With 63% upside, we maintain our BUY rating.
Solid growth of oncology sector. Revenue of hospital business reached Rmb2.31bn (+37% YoY), with the revenue of outpatient service reaching Rmb813m (+50% YoY) in 1H24. In addition, revenue from inpatient service increased 31% YoY to Rmb1.50bn in 1H24. In terms of the revenue by therapeutics, revenue from the oncology sector reached Rmb1.05bn (+31% YoY), representing 44% of its total revenue in 1H24 while revenue of non-oncology business reached Rmb1.34bn (+39% YoY). In addition, the total number of surgeries reached 46,095, with revenue from surgery rising 39% YoY in 1H24.
Active integration of the acquired hospitals. The company acquired the Yixing Hospital and Chang’an Hospital in 2023. After the acquisition, the company continuously strengthened the construction of oncology and related disciplines, with seven academic leaders and 22 specialists added to Chang’an Hospital in 1H24. In addition, Yixing Hygeia Hospital expanded several new departments, including oncology, nephrology, encephalopathy center, critical care medicine, etc. With the active integration after the acquisition, we expect the improving operating efficiency and the enhanced capacity for department development of the acquired hospitals.
Further rising number of hospital beds. Now, the company mainly operates 16 oncology-focused hospitals, with four Class III general hospitals (Chang’an, Guangji, Dezhou, and Chongqing) and 12 Class II hospitals, covering 13 cities in eight provinces in China. In addition, two new hospitals, including Wuxi Hygeia Hospital and Changshu Hygeia Hospital, is currently under construction, which are designed to be Class III hospitals, with the expected number of beds reaching 800-1,000 and 800-1,200, respectively. With the expansion of new hospitals (Dezhou (under operation since July 2024), Wuxi and Changshu), phase II projects of existing hospitals (Guangji, Yongding, and Kaiyuan) and Chang’an Hospital Phase III project, the total number of available beds is expected to reach over 16k.
Maintain BUY. Given the ramp up of new hospitals and acquired hospitals, we lower adjusted EPS forecast from Rmb1.45 to Rmb1.40 in 24E, from Rmb1.83 to Rmb1.63 in 25E and from Rmb2.24 to Rmb1.93 in 26E. We lower our target price from HK$43.0 to HK$31.9. With 63% upside, we maintain our BUY rating.
Risks. Regulatory price control over medical services; lower-than-expected synergies of M&As targets after being acquired by Hygeia.