1H20 revenue grew 28.1% and net profit grew 1.7%, reaching our full-year forecasts of 50.8%/ 45.1%. We raised UMH’s FY20/21E revenue forecasts by 5.2%/ 7.0% and expect 18.3% sales CAGR in FY19-22E onwards, driven by strong medical services. We derive DCF-based 12-month target price at HK$7.26 with 27.4% upside potential. Maintain BUY.
- 1H20 revenue staying strong, net profit lagging behind. Total revenue increased by 28.1% to HK$1,118.5mn, among which medical services, aesthetic medical services and beauty and wellness services grew 102.2%/ 8.1%/ 7.7% YoY. Besides, revenue contributed by PRC clients climbed to 39% in 1H20. Contracted sales grew 18.3% to HK$1,065.1mn and incremental of sales volume was recorded in each month in 1H20, despite challenging operating environment in HK. Net profit to shareholders grew at 1.7% to HK$197.5mn and the lag was mainly due to higher registered practitioner cost as total number of doctors increased from 76 by end Sep 2018 to 97 by end Sep 2019 and most of them are specialists, whom are paid much higher than GPs.
- Expect 2H20 revenue to maintain double digit growth. We saw UMH recorded negative contracted sales growth during the national day golden week due to the challenging environment. We believe 2H20 contracted sales growth may slow down to high single digit. Medical services grew 102.2% in 1H20 due to 1) incremental revenue contribution from newly set up specialist medical centers, and 2) client referral from insurance companies. We also saw the cash flow breakeven period was less than five months for newly set up specialist centers, much shorter than expectation. The rapid ramp up of medical services will support total revenue to grow during the special period. We raised our FY20/21E revenue forecasts by 5.2%/ 7.0% and expect revenue CAGR of 18.3% in FY19-22E.
- Attractive valuation and maintain BUY with new TP of HK$7.26. We raised FY20/21E revenue forecasts by 5.2%/ 7.0% to reflect stronger-than-expected medical services. We raised registered doctor cost ratio to 1H20 level due to more specialists on board. As a result, we tuned down FY20/21E net profit by 10.8%/ 10.9% and expect net profit to grow 8.3%/ 16.7% in FY20/21E. We derive new TP of HK$7.26 based on updated DCF model. UMH currently trades at 14.3x 1-year forward P/E, vs. HK listed peers’ average 19.3x P/E. We believe current valuation is still attractive. Catalyst: attractive M&As.
