Jinxin reported RMB612mn revenue in 1H20, down 23% YoY, accounting for 38% of our full-year forecast. Attributable net loss was RMB116mn in 1H20, down 32% YoY. It was primarily due to the COVID-19 outbreak and travel restrictions between China and US. The total number of IVF treatment cycles in 1H20 was 9,643, down 28% YoY. Considering the impact from COVID-19 pandemic in 1H20, Jinxin’s results fell largely in line with our estimates. We remain positive on the Company’s long-term growth prospects driven by both strong organic growth and acquisition opportunities.
- Patients visits and IVF cycles gradually went back to normal. In China, patient visits have recovered to a higher level than the previous year from April, and IVF treatment cycles also recovered to the same level as the previous year in June. In 2Q20, revenue form Chengdu and Shenzhen hospitals grew by 79% QoQ and 78% QoQ, respectively. Notably, VIP cycles delivered a strong 68% YoY growth in 1H20 amid the COVID-19 pandemic. VIP service penetration rose significantly from 5.2% in 1H19 to 11.6% in 1H20. As for the US business, IVF treatment cycles of local patients has recovered to a normal level from July. The Company agreed to establish a JV with Mengmei Partners in order to consolidate the agency channels and to provide one-stop-shop services for patients seeking overseas ARS services.
- Expanding hospital network through acquisitions. Jinxin announced the acquisition of an ARS provider in Laos and Wuhan Huangpu Hospital (武汉黄浦中西医结合妇产医院, Wuhan Hospital) in March and July, respectively. Through acquisitions, Jinxin has expanded its footprint from Chengdu city to Shenzhen city, the US, Laos and Wuhan. Benefiting from the Company’s excellent operation experiences, strong technical know-how, good brand awareness and sufficient cash on hand, the Company will continue to expand its geographic network through acquisitions, in our view.
- Promising growth outlook with rich acquisition opportunities and healthy cash flows. Jinxin had RMB3.2bn cash on hand as at 30 Jun 2020, providing sufficient funding for acquisitions. We think Jinxin continue to acquire ARS hospitals in tier 1/2 cities in China.
- Maintain BUY with TP of HK$13.8. To factor in temporary impact from COVID-19 pandemic, we revised down our FY20E/21E revenue by 8%/7%, and trimmed our DCF-based TP to HK$13.8 from HK$14.4 (WACC: 10.2%, terminal growth rate: 3%). Maintain BUY.
- Catalyst: Acquisitions of quality assets; Risk: Impact from COVID-19 pandemic.
