China Puti. Universal Medical (2666 HK) Essential player in China s public hospital reform. Visit Note. Not Rated HK$6.77

Transcription

1 Universal (2666 HK) China Puti Essential player in China s public hospital reform Rating Current Price Not Rated HK$6.77 Integrated healthcare services, spurred by healthcare reform Healthcare resources and patient inflows in China are heavily skewed towards national Class III hospitals vs. county-level hospitals. There are c.2,850 counties in China, covering 66% of the population, while county hospitals only accounted for 42%/38%/34%/47% of total beds/ physicians/ outpatient visits/ inpatient visits in In order to provide a more efficient system, PRC government is 1) establishing a tiered medical care system ( 分級診療 ) aiming to treat 90% of patients at their local county-level hospitals and 2) promoting public private partnerships (PPPs) to improve healthcare provision. With favourable policies and insufficient clinical capabilities in county hospitals, we see huge market potential for integrated healthcare services. Healthcare industry focus, fast growing equipment financing Universal s medical equipment lease receivables (represent c.75% of its total receivables) grew from RMB4,441mn in 2012 to RMB16,693mn in 2015, representing a CAGR of 55%, outpacing industry growth of 34% according Frost & Sullivan, owing to its focus on county hospitals and strong funding capabilities. Significant progress in hospital investment and management Under the cooperation model with First Affiliated Hospital (FAH) of Xi an Jiaotong University, Universal will 1) provide a funding of RMB2bn to build the International Land Port (ILP) Hospital and 2) establish a JV with FAH to provide supply chain services for FAH and ILP Hospital. FAH is the largest Class IIIA general hospital in Northwest China, with c.2,500 beds. According to management, FAH generated a revenue of RMB3.5bn in 2015 and the supply chain business is expected to capture 50-60% of FAH s revenue. Moreover, the company secured cooperation projects with Second Affiliated Hospital of Zhengzhou University and Handan municipal government in Jun and Sep 2016 respectively (Exhibit 10). More cooperation projects Given the company s diversified healthcare resources with SOE backing and funding capability, we expect the company will replicate the cooperation model used in the project with FAH to scale up its supply chain business and hospital investment. Valuation and outlook According to Bloomberg s consensus, the company is trading at 7.7x 2017E P/E, below leasing companies average of 8.9x, and suggesting a large discount to hospital plays average of 27.0x. We see its valuation processes a strong re-rating potential, following 1) execution on ramping up its hospital business and 2) robust growth of non-interest from advisory and hospital upgrade services. Visit Note 7 Oct 2016 Wilfred Yuen wilfred.yuen@cinda.com.hk (852) Trading data 52-Week Range (HK$) 4.82/ Mth Avg Daily Vol (m) 5.5 No of Shares (m) 1,716 Market Cap (HK$m) 11,619 Major Shareholders (%) Genertec (38%) CITIC Capital (14%) Auditors EY Result Due FY16: Mar Company description Universal Financial & Technical Advisory Services Co Ltd ( Universal ) is the largest integrated healthcare solution provider in China in terms of revenue in The company provides hospitals with 1) equipment financing, 2) advisory services and 3) clinical department upgrade services. The company was listed in HKSE in Price chart Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 RMB mn FY13 FY14 FY15 1H15 1H16 Revenue 981 1,553 2, ,251 Net Profit EPS (RMB) P/E (x) NA NA 13.1 NA 12.7 Sources: Company, CIRL Source: Bloomberg Page 1 of 5

2 Exhibit 1: Universal - history and development milestone Year Milestone 1984 CU Leasing, the company's first operating subsidiary, w as found. Its principal business in leasing in the PRC 1998 GT-PRC w as established and became the indirect single largest equity-holder of CU Leasing 2006 CU Leasing became a w holly-ow ned subsidiary of GT-PRC and started to focus on the healthcare industry in the PRC 2009 Started equipment in-licensing services 2011 Started engaging in CVA (cardiovascular accident)-related business 2012 CITIC Capital Leasing and Jublon became strategic investors 2015 Started engaging in HIT (hospital information system) business 2016 Started engaging in hospital management business, CIRL Exhibit 2: Integrated healthcare service provides in PRC Exhibit 3: Universal s integrated business model 25% 20% Market share of integrated healthcare service providers in PRC (2014) 21% 20% 15% 10% 13% 11% 6% 5% 0% Universal Hokai Instruments Concord Services Blue Ocean Strategy Haitong Unitrust International Leasing Exhibit 4: Shareholding structure Exhibit 5: Gross profit breakdown (1H16) Clinical department upgrade service 8% Others 38% Central Management Huijin 2% Investment 8% CITIC Capital 14% Genertec 38% Industry, equipment, and financing advisory 34% Finance lease 58%, CIRL Page 2 of 5

3 Exhibit 6: Revenue (before business tax) growth ( ) Exhibit 7: Net profit growth ( ) RMB mn 2,500 2,000 3-year CAGR: 53% RMB mn year CAGR: 55% 659 1, , Finance lease Industry, equipment, and financing advisory Clinical department upgrade service Exhibit 8: Finance lease segment - NIM and NIS recovered in 1H16 Exhibit 9: Net lease receivables by industry (1H16) 4.5% 4.0% Others 3% 3.5% 3.0% 2.5% 2.0% Education 22% 1.5% 1.0% 0.5% Healthcare 75% 0.0% 1H14 2H14 1H15 2H15 1H16 Net interest margin (%) Net interest spread (%) Exhibit 10: Cooperation projects in hospital investment and management Date Co-operation partner Proflle Detail Jan 2016 Jun 2016 Sep 2016, CIRL First Affliated Hospital (FAH) of Xi'an Jiaotong University Second Affliated Hospital Handan First Hospital FAH is the largest Class IIIA general hospital in Northw est China, w ith ~2,500 beds (Revenue in 2015: RMB3.5bn) Second Affiliated Hospital is a Class IIIA general hospital Handan First Hospital is a Class IIIA general hospital According to the cooperation agreement w ith FAH of Xi an Jiaotong University, the company w ill 1) provide a funding of RMB2bn for the construction of International Land Port (ILP) Hospital (Class III hospital w ith 1,000 registered beds) for FAH and 2) establish a JV w ith FAH (80%- ow ned by Universal ) to provide supply chain services for FAH and the new hospital. According to management, FAH generated a revenue of RMB3.5bn in 2015 and the supply chain business is expected to capture 50%-60% of its sales. Co-construct and operate the International Airport Hospital Establish an eastern branch of Handan First Hospital, w ith 3,000 beds for treatement and 1,000 for elderly care Page 3 of 5

4 Exhibit 11: Peers comparison Company Ticker Price Mkt Cap P/E (x) EPS Grow th (%) P/B (x) ROE (%) HK$ HK$mn Universal 2666 HK , NA Leasing company: BOC Aviation 2588 HK ,801 NA NA 11.7 NA Far East Horizon 3360 HK , CDB Finance Leasing 1606 HK ,400 NA NA 13.3 NA NA China Aircraft Leasing 1848 HK , Differ 6878 HK , Average Hospital management: Phoenix Healthcare 1515 HK , Kangning 2120 HK , NA Harmonicare 1509 HK , NA NA Average Source: Bloomberg Exhibit 12: Financial summary Income statement Cash flow Year to Dec (RMB mn) FY12 FY13 FY14 FY15 Year to Dec (RMB mn) FY12 FY13 FY14 FY15 Revenue ,553 2,193 PBT COGS (205) (349) (620) (885) Taxes (59) (109) (167) (188) Gross profit ,309 D&A SG&A (147) (261) (317) (460) CFO before WC change ,320 1,816 Other and gains Change in w orking capital (1,861) (4,445) (4,471) (6,088) Other expenses (8) (8) (21) (7) Cashflow from operation (1,593) (4,089) (4,111) (5,321) PBT CAPEX (60) (1) (1) (29) Tax (61) (106) (154) (242) Free cash flow (1,653) (4,090) (4,111) (5,350) Minority Interests Dividends 0 0 (78) (8) Net profit Balance Sheet adj. NA (16) 17 (55) Dividend 0 0 (78) (8) Shares issued ,776 Net cash flow NA (4,106) (3,368) (2,638) Net cash (debt) start NA (3,481) (7,587) (10,955) Net cash (debt) at year-end (3,481) (7,587) (10,955) (13,593) Balance Sheet Ratios Year to Dec (RMB mn) FY12 FY13 FY14 FY15 Year to Dec FY12 FY13 FY14 FY15 Cash & cash equivalents ,866 Grow th rate (%) Inventories Revenue NA 65.4% 58.2% 41.3% Trade and other receivables Gross profit NA 62.9% 47.4% 40.2% ST loans and accounts receivables 1,535 2,584 4,168 5,919 Net profit NA 176.0% 146.0% 144.2% Other current assets PPE Margins (%) LT loans and accounts receivables 3,724 6,981 11,471 15,397 Gross profit margin 65.5% 64.5% 60.1% 59.7% Other non-current assets Net profit margin 29.9% 31.9% 29.4% 30.0% Total assets 5,883 10,452 16,385 23,658 Other ratios Trade and bills payables ROE (%) 30.2% 30.9% 25.4% 15.9% Other payables and accruals ROA (%) 3.8% 3.8% 3.4% 3.3% Bank borrow ings 2,065 3,358 4,118 7,635 Current ratio (x) 68.2% 79.4% 87.9% 97.7% Tax payable Net gearing (%) 406.6% 649.1% 451.3% 231.1% LT borrow ings 1,724 4,547 7,290 7,824 Risky assets to equity ratio (x) Other non-current liabilities ,255 1,802 Effective tax rate (%) 26% 25% 25% 27% Total Liabilities 5,027 9,284 13,958 17,777 Share capital ,580 4,328 Reserves ,553 Shareholders' equity 856 1,169 2,427 5,881 Minorities Total equity 856 1,169 2,427 5,881 Net cash (debt) (3,481) (7,587) (10,955) (13,593), CIRL Page 4 of 5

5 Rating Policy Stock Rating Sector Rating Rating Definition Buy Outperform HSI by 15% Neutral Between -15% ~ 15% of the HSI Sell Underperform HSI by -15% Accumulate Outperform HSI by 10% Neutral Between -10% ~ 10% of the HSI Reduce Underperform HSI by -10% Analysts List Hayman Chiu Research Director (852) hayman.chiu@cinda.com.hk Kenneth Li Senior Research Analyst (852) kenneth.li@cinda.com.hk Lewis Pang Senior Research Analyst (852) lewis.pang@cinda.com.hk Wilfred Yuen Research Analyst (852) wilfred.yuen@cinda.com.hk Chloe Chan Research Analyst (852) chloe.chan@cinda.com.hk Johnny Yum Research Assistant (852) johnny.yum@cinda.com.hk Analyst Certification I, Wilfred Yuen hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also certify that no part of my compensation was / were, is / are or will be directly or indirectly, related to the specific recommendations or views expressed in this report / note. Disclaimer This report has been prepared by the Cinda International Research Limited. Although the information and opinions contained in this report have been compiled or arrived at from sources believed to be reliable, Cinda International cannot and does not warrant the accuracy or completeness of any such information and analysis. The report should not be regarded by recipients as a substitute for the exercise of their own judgment. Recipients should understand and comprehend the investment objectives and its related risks, and where necessary consult their own financial advisers prior to any investment decision. The report may contain some forward-looking estimates and forecasts derived from the assumptions of the future political and economic conditions with inherently unpredictable and mutable situation, so uncertainty may contain. Any opinions expressed in this report are subject to change without notice. The report is published solely for information purposes, it does not constitute any advertisement and should not be construed as an offer to buy or sell securities. Cinda International will not accept any liability whatsoever for any direct or consequential loss arising from any use of the materials contained in this report. This document is for the use of intended recipients only, the whole or a part of this report should not be reproduced to others. Page 5 of 5