Jinxin announced the acquisition of 75% stake in Wuhan Huangpu Hospital (武汉黄浦中西医结合妇产医院, Wuhan Hospital) at a cash consideration of approximately RMB320mn. We expect the deal to be closed by July 2020E. Leveraging its successful operating experiences, the Company will continue to expand its geographic network through acquisitions, in our view. To factor in temporary impact from COVID-19 pandemic, we revised down our FY20E/21E net profit forecasts by 21%/5%. Meanwhile, considering better long-term growth prospects driven by both domestic and overseas acquisitions, we lifted our DCF-based TP to HK$14.4. Maintain BUY.
- A big step in domestic expansion. Wuhan Hospital is a for-profit Class III specialized maternity hospital located in Wuhan, Hubei Province. Wuhan Hospital is one of the only two non-public and for-profit hospitals with IVF licenses in Hubei Province. Hubei Province has a large population of approximately 59mn while the ARS market in Hubei Province is fragmented. After the acquisition, Jinxin will significantly lift the operating efficiency of Wuhan Hospital by leveraging its successful experiences in Chengdu and Shenzhen. Jinxin will attract top doctors to enhance the brand awareness and service quality of Wuhan Hospital. The Company plans to offer competitive share incentives to key employees and has reserved 5% stake in Wuhan Hospital for employee incentive purpose.
- Expect fast ramp-up of Wuhan Hospital. Wuhan Hospital currently has a capacity of 4,000 IVF cycles per annum. With further renovation and upgrade, the capacity can reach 6,000+ cycles per annum. With official IVF license obtained in Oct 2019, Wuhan hospital completed 343 IVF cycles in 2019. Driven by improving operating efficiencies after the acquisition, we expect Wuhan Hospital to reach 1,000/2,000/3,000 IVF cycles in 2021E/22E/23E. We also forecast ASP of Wuhan Hospital to increase 5-10% every year in FY21-22E thanks to improving service quality and better brand awareness.
- Jinxin to grow into a global leading ARS provider via geographic expansion. Through acquisitions, Jinxin has expanded its footprint from Chengdu city to Shenzhen city, the US and Laos. We see the acquisition of Wuhan Hospital as another strong proof of the Company’s geographic expansion capability. Benefiting from the Company’s excellent operation experiences, strong technical know-how, good brand awareness and sufficient cash on hand, Jinxin will accelerate its speed of expansion.
- Maintain BUY with new TP of HK$14.4. To factor in temporary impact from COVID-19 pandemic, we revised down our FY20E/21E net profit by 21%/5%. Meanwhile, considering better long-term growth prospects driven by both domestic and overseas acquisitions, we lifted our DCF-based TP to HK$14.4 model (WACC: 9.5%, terminal growth rate: 4%). Maintain BUY.
Catalysts: Acquisitions of quality assets; Risks: Impact from COVID-19 pandemic.
