Image source @ Visual China
Text | Zhitong Finance
In recent years, in the tide of construction of hierarchical diagnosis and treatment of strong grass-roots units, oncology medical services with high incidence, chronic diseases and major diseases have become a short board that is difficult for grass-roots public hospitals to make up in the short term, so it also provides a blue ocean market for market-oriented medical treatment. And CCM.US is one of the "surfers" in this blue ocean market.
Although public hospitals still occupy a dominant position in the current domestic cancer medical service market, with the increasing number of cancer patients, private cancer specialized hospitals are also growing, including many "halfway out" enterprises. Take, for example, Hong Kong-listed company Hygia Medical, which started with radiotherapy through the acquisition of Gamma Star Technology in 2009 and provided radiotherapy business to cooperative radiotherapy centers. Subsequently, through "self-construction + acquisition", it has expanded the general hospital with tumor as the core, and has now become the largest cancer medical group in China.
The development path of Taihecheng Medical is similar to that of Hykia, its early main business was to manage cancer treatment centers through medical equipment leasing and cooperation with public hospitals, and after the listing on the New York Stock Exchange in 2009, Taihecheng began to march in the direction of cancer hospitals.
However, compared with the booming performance of Hykia Medical, in recent years, Taihecheng has suffered losses year after year, and in the recent financial report released by the company in the first half of 2021, Taihecheng is still in a state of loss. By analyzing the latest financial reports, investors may be able to have a certain understanding of the company's business development.
How far can the dual-track development path go?
Different from the development path of "seizing the gap in medical service supply and laying out third- and fourth-tier cities" taken by Haijiya, due to the transformation of the cancer hospital market from the cooperation center model, the cooperation center is a barrier that cannot be crossed in the development path of Taihecheng. This is also the difference between its market positioning and Hykia.
Zhitong Finance APP learned that after the listing of the US stock market, Taihe Cheng began to transform from the cooperation center model to the tumor hospital model, reducing the business dependence on the resources of doctors and customers in public hospitals. Among them, the number of cooperative centers and cooperative hospitals decreased from 83 and 55 in 2008 to 31 and 21 in 2018. At the same time, the gross profit margin of the business also dropped sharply from 85.07% to 36.56%.
It is not difficult to see that after the announcement of business transformation, the overall scale and profitability of the business of Tahwa Cheng Cooperation Center after 10 years have declined more seriously than when it was IPO. The reason is that in recent years, many hospitals have chosen to end their cooperative relationship with Taihecheng by buying out equipment.
Behind this phenomenon is the growth of the number of radiotherapy equipment in the domestic market, so that the average annual number of tumor patients treated by radiotherapy centers has decreased year by year. Under the increasingly fierce market competition, the hospital's voice in revenue distribution has been increasing, which has indirectly led to the decline in the profitability of the business of Taihecheng Cooperation Center.
Through the above background interpretation, it is not difficult for investors to understand why in the first half of 2020, the business revenue of the company's cooperation center fell sharply to 37.674 million yuan. However, due to the easing of the epidemic and the positive factors affected by the company's development of a medical device cloud system solution for its existing medical equipment and consumables sales services, the business of the Taihe Cheng Cooperation Center achieved a significant increase in the first half of this year, achieving revenue of 129 million yuan, an increase of 241.4% year-on-year.
Compared with the substantial growth of the cooperative center business, the revenue growth of Taihecheng's cancer hospital business was slightly weak, only 41.7%. However, compared with peers, Hygia Medical's 2021 interim report forecast revenue increased by 47.7% year-on-year, SINBON Pharmaceutical's Q2 2021 revenue increased by 14.6% year-on-year, and Yingkang Life's Q2 2021 Q2 revenue increased by 5.42% year-on-year, which shows that the growth rate of Taihecheng Hospital's business revenue is still at the forefront of the industry.
However, in terms of profits, the net profit growth rate attributable to the mother of Hygia and SINBON reached 8287.27% and 326.95% respectively, compared with Taihe Cheng's current period, which turned into a loss year-on-year, with a net loss of 172 million yuan.
From the perspective of the cost side of Tahogenum, the reason for the company's net loss is that it has restarted the business development of the cooperation center and the expansion of the hospital. From the financial report, it is not difficult to find that on the cost side, the cost of the cooperation center business has increased significantly from 14.644 million yuan in the same period of 2020 to 95.642 million yuan in the same period of this year, an increase of 5.5 times year-on-year, due to the company's business expansion in consumables sales and services. The increase in the cost of the hospital's business is in preparation for the opening of the Guangzhou Hospital, which began operations in June this year.
From the business revenue growth curve, it is not difficult to find that Taihecheng has chosen to restart the cooperation center model and develop a dual-track development path with the hospital model under the condition of easing the epidemic. Although this means that compared with the ALL-in cancer hospital model, the dual-track model has given Taihecheng more of a performance growth curve, but from the official transformation of the hospital model in 2009 to the current return to the old business, does it also show that Taihecheng's transformation road of more than 10 years is still experiencing a painful period? Does this mean that the company's massive investment in hospitals has not been able to compensate for the decline in its partner center business?
How to boat in the blue ocean of strong competition?
From the perspective of the market, domestic cancer hospitals are undoubtedly a large blue ocean market.
As mentioned above, although public hospitals still dominate the current domestic cancer medical service market, with the increasing number of cancer patients, private cancer specialized hospitals are also growing.
In terms of quantity, the number of private oncology hospitals increased from 42 in 2009 to 74 in 2019, accounting for an increase from 36% to 50.7%; From the perspective of the growth rate of private oncology medical revenue, the CAGR from 2015 to 2019 was 23.7%, higher than the 11.7% of public hospitals.
The reason for the liberalization of private cancer hospitals in China is closely related to the continuous expansion of the indication market. According to the Zhitong Finance APP, in recent years, the overall incidence of cancer in China has shown an upward trend, and the number of new cancer patients will increase year by year.
The huge unmet demand for treatment is accelerating the growing market size. The oncology medical service market also increased from 233.1 billion yuan in 2015 to 373.7 billion yuan in 2019, with a compound annual growth rate of 12.5%, and it is expected that it will further grow at a compound annual growth rate of 11.5% from 2020 to 2025, and the demand for oncology medical services will reach 710 billion yuan by 2025.
Due to the insufficient supply and strong demand in the tumor sinking market, and the need for follow-up treatment of cancer patients in the local area, there is obviously a greater opportunity in the sinking market for tumor services.
The data shows that third-tier cities and other cities account for a larger proportion of cancer in China than China's first-tier cities and second-tier cities. It is estimated that by the end of 2025, the growth rate of cancer patients in third-tier cities will be as high as 2.77%, while the growth rate of first-tier and second-tier cancer patients is expected to be only 0.93% and 2%. In addition, the patients in the first and second tier cities have a relatively strong ability to pay and are more willing to go to public hospitals for medical treatment, resulting in private hospitals not having an advantage in the process of market competition, only as a supply supplement after the market supply and demand is tight.
In contrast, the number of operating beds in the oncology departments of hospitals per million population in third-tier and other cities is 147, compared with 180 in second-tier cities and 197 in first-tier cities. The sinking market is clearly a strong demand market. However, from the perspective of the layout of Taihecheng's hospital, its main implementation is the strategy of building its own cancer hospital in Beijing, Shanghai and Guangzhou.
From the current point of view, Taihecheng's "mid-end + high-end" brand strategy is still in the construction period, on the one hand, the two hospitals acquired have been transferred (Chang'an Hospital and Singapore Taihe International Hospital), on the other hand, the high-end medical institutions with high hopes have not yet become the main source of revenue, so for Taihecheng, after its high-end medical institutions are put into operation and generate stable income, the company is expected to turn losses into profits in the follow-up, so the market still needs to wait and see.