Jinxin reported 2020 revenue of RMB1.43bn (-13.5% YoY) and adjusted net profit of RMB372mn (-29.8% YoY), which were slightly below our estimates. Normal operations were interrupted by the COVID pandemic and the travel restrictions between the US and China. By region, revenue from the US decreased 34.5% YoY to RMB380mn and revenue from China slightly retreated 2.1% YoY to RMB1,046mn.
- Fast recovery in 2H20. Thanks to efficient operation, Jinxin’s business rebounded significantly in 2H20 given that its revenue from Chengdu, Shenzhen and the US rebounded by 21.5%, 49.1% and 36.1% HoH, respectively. In the US, local cycles conducted by HRC grew by 5.1% YoY from 2,283 in 2019 to 2,400 in 2020, indicating the Company’s superior operation capability amid the COVID pandemic. As the pandemic will gradually ease, we expect Jinxin’s both China and overseas business to continue to rebound in 2021E and beyond.
- VIP services delivered strong growth. VIP IVF treatment cycles accounted for 10.8% of total cycles conducted in Chengdu (vs 5.8% in 2019), representing 50.3% YoY growth. In Shenzhen, Jinxin upgraded its VIP services from only offering mini-VIP services to offering integrated-VIP services from Jan 2021. We expect the fast penetration of VIP services to help lift margins.
- M&As being long-term growth drivers. Historically, through M&A, Jinxin has expanded its footprint from Chengdu city to Shenzhen city, the US, Laos and Wuhan city. In China, 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 explore M&A opportunities in tier 1/2 cities that have great coverage to local province and its surrounding areas. We expect Jinxin to complete at least one acquisition deal every year in China. In the US, we also expect, Jinxin to hire more new physicians and acquire fertility clinics to further expand market share. In southeast Asia, Jinxin prioritizes to acquire leading and reputable IVF provider in Southeast Asia to explore growth potential of the local markets.
- Lift TP to HK$19.55. To factor in the impact from COVID-19, we trimmed our 21E/22E forecast of revenue and net profit by 16%/16% and 19%/20%, respectively. we roll over our TP to 21E and derive new DCF-based TP of HK$19.55 (WACC: 9.5%, terminal growth rate: 3.0%). Catalyst: Acquisitions of quality assets; Risk: Worse impact from COVID-19 pandemic.
