Jinxin reported FY19 revenue of RMB1.65bn (+79% YoY) and adjusted net profit of RMB530mn (+101% YoY), in line with our estimates. Growth was mainly driven by solid organic growth and the consolidation of HRC Management. Excluding impact from acquisition, the organic growth in adjusted net profit was 27% YoY. Considering that COVID-19 outbreak could interrupt Jinxin’s business operations, we lowered FY20/21 revenue forecasts by 5%/5% and attributable net profit forecast by 7%/7%, accordingly. We lowered our DCF-based TP to HK$13.3. We remain positive on Jinxin based on its solid and sustainable organic growth as well as promising geographic expansion through acquisitions. Maintain BUY.
- Solid earnings. Revenue from Chengdu network hospitals increased 16% YoY and revenue from Shenzhen Zhongshan Hospital grew 15% YoY while the organic income from HRC management remained largely stable. Thanks to significant operating leverage and higher GPM from US business, blended GPM improved by 4.74ppt to 49.5%. In FY19, Jinxin recorded marketing expenses of RMB62.2mn, which was associated with US business. Adjusted NPM lifted by 3.5ppt to 32.2%.
- Impact from COVID-19. In FY19, network hospitals in China contributed 64.8% of the total revenue, while the remaining 35.2% revenue came from US clinics. Given that COVID-19 spread was largely contained in China, Jinxin’s Chengdu hospital has fully resumed patient visits to a normal level from late March while the patient visits in Shenzhen hospital has recovered to c. 60% of the normal level. However, the serious outbreak of COVID-19 in US has brought uncertainties to Jinxin’s US business operations.
- Accelerating geographic expansion. As of end-2019, Jinxin had RMB3.3bn cash on hand which provides sufficient funding for future acquisitions. In 1Q20, Jinxin announced the acquisition of IVF licenses from Rhea International Medical Centre (Rhea) in Laos which will provide a capacity of over 3,000 IVF treatment cycles per year. Jinxin will actively look for acquisition opportunities in China, US, Russia and other regions. Given the COVID-19 outbreak, many IVF institutions are facing financial pressures and are more willing to sell at a discounted valuation. Thus, we expect Jinxin to accelerate geographic expansion through acquisitions.
- Maintain BUY. We expect Jinxin’s adjusted net profit to grow 16%/23%/20% YoY in FY20E/21E/22E, respectively. We lowered TP to HK$13.3 based on 8-year DCF model (WACC:9.5%, terminal growth rate: 4%).
- Catalysts: Quality acquisitions; Risks: Larger impact of COVID-19 outbreak.
