We believe the outbreak of the new strain of coronavirus (nCoV) in China will have mild and temporary impact to Jinxin Fertility (Jinxin)’s business. The Company’s network hospitals are located outside of Hubei Province and are less vulnerable to the disease. We believe the assisted reproductive services (ARS) demand will pick up after CNY given the high flexibility in treatment arrangement. Jinxin leverages online consultation services to serve existing customers and attract more new customers. Maintain BUY at HK$15.0.
- Network hospitals are located outside of Hubei Province and are less vulnerable to the disease. As of 28 Jan, China had 5,974 nCoV patients while 3,554 patients, or 59% of the total nCoV patients, were from Hubei Province. In China, Jinxin’s network hospitals are located in Chengdu city and Shenzhen city where are less impacted by the outbreak of nCoV. Dr. Nanshan Zhong, the most famous authority in China, predicted on 28 Jan that the spread of nCoV will peak within the next 7-10 days. Hence, we expect the impact from the nCoV outbreak will be mild and temporary.
- First quarter is usually the low season while patients will come back after CNY. For instance, Jinxin’s revenue in 1H18 accounted for 45% of its full-year revenue in 2018. Chinese people usually dislike going to hospitals during CNY. Given that ARS has high flexibility in treatment arrangement, we believe demand in ARS will pick up after CNY, probably from Feb 2020.
- Effective measures have been taken to minimize the interruption of operations. Jinxin’s network hospitals in Chengdu and Shenzhen have strictly monitored the health conditions of patients and employees. So far, there were no (suspected) nCoV patients found in the Company’s network hospitals. Meanwhile, Jinxin has provided in-time on-line consultation services via various online channels such as WeChat and official websites. Online services are now extended to 11pm every night.
- Promising growth outlook with rich acquisition opportunities. Jinxin had RMB3.1bn cash on hand as at 30 Jun 2019, providing sufficient funding for acquisitions. We think Jinxin may acquire private ARS hospitals in tier 1/2 cities in China while the Company will prudently screen the acquisition targets based on valuation, management team, location of the targets and synergies with existing business. As for the US business, we think Jinxin will further acquire surrogacy and egg donor agencies, or embryology laboratories in the US to extend services along the ARS value chain. Southeast Asia region is also the top destination for fertility tourism due to the relatively low service cost and loose regulatory environment. We believe Jinxin will acquire ARS institutions in Southeast Asia to meet the sophisticated demand for Chinese patients.
- Maintain BUY. We expect Jinxin to deliver 36% CAGR in revenue and 54% CAGR in adjusted attributable net profit in FY18-21E. We derive TP of HK$15.0 based on 8-year DCF model (WACC:9.5%, terminal growth rate: 4%).
- Catalysts: Acquisitions of quality assets; Risks: weak organic growth.
