INTERNATIONAL MEDICAL(000516)INITIATION：XI‘AN-BASED GENERAL MEDICAL SERVICE LEADER EMBRACING HIGH-QUALITY GROWTH

As a rare large-scale general medical service group in China, International Medical has been actively exploring an integrated business mode that combines both general medical services and specialties. We forecast its 2022E-24E revenue to be Rmb3.043bn/4.405bn/5.953bn and adopt the DCF valuation method to arrive at a target price of Rmb15. We initiate coverage with a "BUY" rating.
Focusing on its main medical business and showing operational resilience under the pressure brought by regional Covid flare-ups.
International Medical is a rare large-scale integrated medical service group in China. It acquired Xi’an Gaoxin Hospital (aka Xi'an High-tech Hospital) in 2011 and continued to build Xi’an International Medical Center Hospital and a rehabilitation hospital successively to expand its businesses. The Company has been actively exploring an integrated business mode that combines both general medical services and specialties. It gives full play to the synergies within a comprehensive medical institution, providing high-level medical services while actively expanding to high value-added specialty segments such as assisted reproduction, rehabilitation, gynaecology and paediatrics, special treatment, proton therapy, medical aesthetics, and so on, with the standardized medical quality of a Grade-A tertiary hospital. In 2021, the Company achieved revenue of Rmb2.921bn, with a YoY growth of 81.78%, and has continued to achieve positive growth in revenue since focusing on medical businesses. In 2Q22, Xi’an International Medical Center Hospital’s number of outpatients/inpatients visits reached 313.4k18.4k, respectively, an increase of 480.54%/221.79% QoQ, while the number of emergency outpatients/inpatients of Xi’an High-Tech Hospital was 533k/11.9k with a QoQ growth of 1066.59%/238.76% respectively, showing the rigid demand of the industry and the Company’s excellent operation capability under the pressure of regional Covid flare-ups.
With the synchronization of medical needs and policies, the future of non-government medical services is promising.
According to the National Health Commission (NHC), in 2021, the nationwide number of hospital/clinic visits was 8.47bn (+9.4% YoY) and averaged health expenditure per capita reached Rmb5,348 (a CAGR of 13.0% in 2008-21). Excluding the data fluctuations under the local Covid flare-ups, in the long term, the total amount of medical services will increase in both volume and price under the trend of population aging, increasing incidence of chronic diseases and improved consumption power. On Jul 19, 2022, the National Healthcare Security Administration (NHSA) issued a notice on further improving the management of medical service prices, which clearly prioritizes the selection of items from the treatment, surgery and traditional Chinese medicine categories whose prices have not been adjusted for a long time, and those with higher labor cost (accounting for more than 60% of the price composition) should be included in the scope of price adjustment. We believe that large medical service institutions with specialty segments and regional advantages are likely to benefit. At the same time, the market-oriented characteristics of medical services under the diagnosis-related group (DRG) and diagnosis-intervention packet (DIP) payment approaches are strengthened, and outstanding non-government medical services may highlight their competitiveness by virtue of their differentiated operating advantages such as flexible mechanisms and refined management and control.
As Northwest China lacks high-quality diagnosis and treatment resources, Xi'an may play the role as a “medical highland”.
According to the NHC, the total number of hospitals in Northwest China (including Xinjiang, Qinghai, Tibet, Shaanxi, Gansu, and Ningxia, the same below) in 2020 was 3,445, with a YoY growth rate of 0.17% (lower than the overall YoY growth rate of 3.03% nationwide). Among them, tertiary hospitals accounted for only 7.61%, which was also lower than the national average of 9.3%. In total, there were 73 tertiary hospitals in Shaanxi Province, accounting for 32.03% of the total in Northwest China. The number for Xi’an was 41, which accounted for 56.16% of the total number in Shaanxi Province. According to the NHSA’s notice issued on Jul 2022, the unified management of basic medical insurance funds will likely be advanced at the provincial level within 2023, and Xi'an is likely to play the role as the “medical highland” in the northwest region, continuing to attract patients from different places in Northwest China by virtue of its advantages in medical resources.
The Company has clear growth logic and its service capabilities of the whole life cycle continue to be strengthened.
Among the three core hospitals of the Company: ①Xi’an Gaoxin Hospital is the first non-government Grade-A tertiary hospital in China and it has been operating successfully for 20 years. The planned capacity reached 1,500 beds after the construction of Phase II. On Apr 13, 2022, the number of outpatient visits also recovered rapidly after the follow-up consultation (the highest daily hospitalization volume reached 1,349 beds), and the first and second phases of the project are already operating at close to full capacity. ②Xi’an International Medical Center Hospital took advantage of the opportunity of the military reform to create a team of superior experts. It opened in Sep 2019, with a planned capacity of 5,037 beds. The hospital passed the JCI certification with full marks on May 27, 2021. ③A rehabilitation hospital will open soon, with a planned capacity of 3,600 beds, segments include obstetrics & gynecology, orthopedics, rehabilitation, traditional Chinese medicine, geriatric, and etc., which may strengthen the whole life-cycle service capabilities of the Company. We expect the Company reached 10,000 full bed capacity in 2023.
Potential risks: Worse-than-expected regional Covid resurgences; policy change in medical insurance payment; medical malpractice; less-than-expected increase in bed numbers of the Company’s hospitals; less-than-expected release of new businesses.
Investment strategy: As a rare large-scale general medical service group in China, International Medical has been actively exploring an integrated business mode that combines both general medical services and specialties. We forecast its 2022E-24E revenue to be Rmb3.043bn/4.405bn/5.953bn and attributable net profit (ANP) to be Rmb-876mn/18mn/258mn, corresponding to EPS forecast of Rmb-0.38/0.01/0.11. Considering that Company’s two core hospitals (Xi’an International Medical Center Hospital and the rehabilitation hospital) are still at the capacity ramp-up stage and the high growth visibility in future, we adopt the DCF valuation method to assign a target price of Rmb15 and initiate the coverage with a “BUY” rating.
【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。

   【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。