We have positive takeaways from Jinxin Fertility’s investor open day. Company’s existing network hospitals delivered solid performance amid the very challenging environment during COVID-19 pandemic. Maintain BUY and lift TP to HK$15.51.
- HRC achieved phenomenal local cycle growth amid COVID-19 pandemic. HRC Management has a total of 14 physicians and each physician has a capacity of 700 cycles per year. HRC recovered much faster than its local competitors as of Jun 2020. Despite the COVID-19 pandemic, HRC’s local cycles continued to increase MoM from June and reached a historical high in Oct. With the increasing supply of COVID-19 vaccines over the course of 2021E, we believe the pandemic will be controlled. HRC’s international cycles (majority of international patients are from mainland China) should have a significant recovery in 2021E. Moreover, HRC is expanding its footprint through acquisition. HRC is working on several acquisitions with combined cycles ranging from 500 to 600 per year.
- Efficient ramp-up of new hospitals in Wuhan and Laos. The Company recently hired Dr. Yang Jing (杨菁) who is a very renowned IVF expert to join Wuhan Jinxin Hospital. Thanks to Dr. Yang’s reputation, we expect Wuhan Jinxin Hospital to deliver 1,000 IVF cycles in 2021E and 2,000 cycles in 2022E. The Company assigned Dr. Geng (耿丽红), the current head of quality control of Jinxin Fertilty, to lead its Loas hospital, which will have a capacity of 3,000 cycles per year. It will ramp up fast after the opening of travel between mainland China and Laos given successful promotion activities.
- M&A will become a sustainable growth driver. Historically, through M&A, Jinxin has expanded its footprint from Chengdu city to Shenzhen city, the US, Laos and Wuhan city. Benefiting from the Company’s excellent operation experiences, strong technical know-how, good brand awareness and sufficient cash on hand, we believe the Company will continue to expand its geographic network through M&A. Management targets to complete one to two acquisition deals per year, in order to provide sustainable growth driver for Jinxin. In addition, we also expect the Company to expand its operating capacity in Shenzhen to further enhance its leading position in Guangdong market.
- Lift TP to HK$15.51. To factor in fast ramp-up of Wuhan hospital and potential faster-than-expected recovery of HRC, we lifted our DCF-based TP from HK$13.80 from HK$15.51 (WACC: 10.2%, terminal growth rate: 3%). Catalyst: Acquisitions of quality assets; Risk: Impact from COVID-19 pandemic.
