In the past two or three years, the stock market has been relatively poor, and many stocks with excellent historical performance have also fallen sharply, and some have reasonable or even low valuations. Yansong Investment Research Circle has done many issues, focusing on high-quality stocks that have fallen significantly in the past two years, and has made an in-depth analysis of these companies from the aspects of historical stock price trends, main business, development, and valuation.
In the next few decades, the pharmaceutical industry will definitely be one of the best industries, today to share the case of two medical companies, here is not to make a judgment on the future, only by reviewing the historical market, sorting out the logic behind the stock price, by the way to explain the situation of the company and the industry, mainly with data to speak.
1. Jinyu Medicine
1. Historical stock price fluctuations
The company used to be a super bull stock, from the low point in October 2018 to the high point in January 2021, with a maximum increase of 900% in more than 2 years. Then it has been adjusted all the way from January 2021 to the present, with a maximum decline of about 74%, and a current decline of 71%.
2. Main business
Jinyu Medical's main business is to provide third-party medical testing and pathological diagnosis services for medical institutions at all levels, and the disease fields covered by the testing items include infectious diseases, blood diseases, solid tumors, nervous system diseases, etc., and can provide more than 4,000 medical tests and pathological diagnosis items, and the test results can be recognized by more than 70 countries and regions around the world.
The domestic ICL shows a strong and strong trend, and the market share of the head ICL Jinyu Medical, Dian Diagnostics and Adicon is about 80%. According to the 2023 semi-annual report, Jinyu Medical has established 49 central laboratories, and has covered more than 90% of the country's population by setting up four outlets: headquarters-level laboratories, provincial-level regional central laboratories, provincial-level laboratories and prefecture-level laboratories.
3. Development history and major changes
The company can be traced back to the medical laboratory center of Guangzhou Medical College, a school-run enterprise founded in 1994. In 2003, Guangzhou Jinyu Medical Laboratory Center was established, mainly serving customers in Guangzhou and surrounding areas. In 2007, Jinan Jinyu was established, and began to accelerate its expansion in the country through self-construction + acquisition, and by the establishment of Tibet Jinyu in 2021, the company has completed the layout of central laboratories in all provinces and regions in the country after 14 years.
4. The company's future planning
According to the description of the company's annual report, the company takes "health sentinel, the pursuit of human health and a better life" as its mission, practices the development strategy of "taking people's health as the center, providing excellent medical testing and pathological diagnosis services through innovation-driven and multi-technology platform integration", and adheres to the two strategic directions of "main channel of medical examination and digital transformation" under the guidance of the three strategic guiding ideologies of "high-quality development, innovation-driven development, and group chess". We are committed to achieving the strategic goal of "becoming the world's leading medical examination industry group".
To put it simply, the company will continue to grow bigger and stronger in the third-party testing track in the future.
5. The future development of the industry
ICL is still in its infancy and has a lot of potential.
In 2021, the penetration rate of ICL in China was only 6%, much lower than 60% in Japan, 44% in Germany, and 35% in the United States. It is estimated that China's ICL market space (excluding COVID-19 testing) is expected to increase from 22.3 billion yuan in 2021 to 51.3 billion yuan in 2026, with a compound annual growth rate of 18.2%, and the industry will continue to maintain a rapid development trend.
The special inspection market is developing rapidly
Compared with hospital laboratory departments, large-scale ICL has higher competitiveness in the special inspection business, can provide personalized and high-end inspection items, and give full play to the advantages of intensification, so the proportion of special inspection in ICL will continue to increase in the future. According to Frost & Sullivan's forecast, the size of China's ICL special inspection market will increase from 10.2 billion yuan in 2021 to 28.9 billion yuan in 2026, with a CAGR of 23.0%, higher than the 13.3% of the general inspection market, and it is expected that the proportion of the ICL special inspection market will exceed 50% in 2023.
The hierarchical diagnosis and treatment system brings a broad space for growth
Hierarchical diagnosis and treatment is to triage patients to different levels of hospital institutions according to the severity of the disease and the complexity of the disease. However, from the perspective of physician resources, medical equipment, testing technology, etc., domestic primary medical institutions are relatively weak, and ICL with rich testing items, leading testing technology, strict quality standard control, and low cost can better meet the testing needs of primary medical institutions and private hospitals, and is also the key market for ICL at present.
6. Performance and valuation
The company's historical performance has grown steadily, especially in the three years of the epidemic, a large number of testing needs have driven the company's performance to grow explosively.
Among them, the net profit in 2020 and 2021 increased by 275% and 47% respectively, and since the net profit in the second quarter of 2020 exceeded 500 million yuan in one fell swoop, the highest single-quarter net profit reached 850 million yuan, while the previous (2017-2019) single-quarter net profit was less than 150 million yuan. After the epidemic, the company's performance has been negative for four consecutive quarters from the fourth quarter of 2022 to the third quarter of 2023, and the main new crown testing revenue is decreasing.
The company announced that the net profit attributable to shareholders of listed companies in 2023 will be 600 million to 730 million yuan, a year-on-year decrease of 73.48% to 78.20%. It is estimated that the non-net profit deducted in 2023 will be 345 million to 425 million, a year-on-year decrease of 84.29% to 87.25%.
In the medical diagnosis service, the proportion of the new crown in the 2021 and 2022 annual reports is not disclosed, and it is difficult for everyone to calculate the specific data. In fact, the new crown has become a thing of the past, and it is not very meaningful to analyze it again, so we can analyze the company's regular business.
In the first three quarters of 2019, the company reported a net profit attributable to the parent company of 319 million, a net profit attributable to the parent company of 576 million in the first three quarters of 2023, a year-on-year increase of 80.54% in the first three quarters of 2023 compared with the first three quarters of 2019, and an average annual compound growth rate of 15.92%.
The company achieved operating income of 3.92 billion yuan in the first three quarters of 2019, and 6.31 billion yuan in the first three quarters of 2023, a year-on-year increase of 60.96% in the first three quarters of 2023 compared with the first three quarters of 2019, with an average annual compound growth rate of 12.64%.
It can be seen that the regular business of the company excluding the new crown business is not growing very quickly, but it is also in a stable growth.
Let's look at valuations
The highest valuation of the company was not the highest stock price in 2021, but about half a year after the start of the epidemic, the valuation exceeded 100 times the P/E ratio, as the epidemic detection reflected on the company's performance, the more the stock price rose, the cheaper the valuation was, after the high point in 2021, the stock price fell and the performance continued to grow, and the valuation fell to the lowest 10 times the P/E ratio in the third quarter of 2022. Then, although the stock price continued to fall and the big performance began to decline, after the two were hedged, the valuation rose a lot.
A very interesting phenomenon is found here, at first, the stock price rises and the valuation becomes cheaper, then the stock price falls, the valuation also falls, and then the stock price falls, and the valuation becomes higher. What did you learn from this?
The current P/E ratio is 29.95x, which is at the low to mid-to-low historical average. The current market capitalization is 21 billion, and the median value of the forecast corresponds to a price-earnings ratio of 31.6 times. Do you think this valuation is high or low?
7. Summary
To sum it up:
- The penetration rate of ICL in mainland China is low, and the development potential is huge;
- Under the background of hierarchical diagnosis and treatment system and medical insurance cost control, the ICL industry will maintain rapid development;
- The company is the industry leader;
- The company's rise and fall are all affected by the epidemic, excluding the epidemic factors, and the conventional business is in stable growth;
- Valuations are currently on the high side, and if growth resumes in 2024, valuations will fall to a reasonable range.
2. Weiss Medical
1. Historical volatility
Weiss Medical, a leading rehabilitation medical device company, has been listed for more than three years, and the general trend is mainly down. In July 2021, it followed the medical device industry all the way back to the present, with a maximum decline of 86%, and is currently down 73%.
2. Main business
Weiss Medical is mainly engaged in the research and development, production and sales of rehabilitation medical devices. There are 6 major technology platforms: electrophysiology, electrical stimulation, magnetic stimulation, radio frequency, laser, and rehabilitation robots, involving 4 major fields: pelvic floor and postpartum rehabilitation, psychiatric psychology, neurological rehabilitation, and sports rehabilitation. The main products are electrophysiology, electrical stimulation, magnetic stimulation equipment, consumables and accessories and other rehabilitation medical devices and products, the prospectus shows that the company's products cover more than 6,000 medical and professional institutions terminals.
The company has successively undertaken a number of national, provincial and municipal scientific research projects, and was selected into the 2022 national "Fourth Batch of Specialized and New 'Little Giant' Enterprise Publicity List".
3. Development history and major changes
The company's development history over the past 20 years can be simply divided into three stages:
(1) 2001-2009, agent sales
Founded in 2001, the company initially focused on agent products and entered the three major rehabilitation markets (psychiatric rehabilitation, neurological rehabilitation market, pelvic floor repair and postpartum rehabilitation market).
(2) From 2011 to 2019, independent research and development and launch of its own products
The company has increased investment in independent research and development, focusing on the pelvic floor repair and postpartum rehabilitation market, and gradually launched electrophysiology and electrical stimulation
In particular, in 2016, the company made a breakthrough in magnetic stimulation technology and launched a transcranial magnetic stimulator. Since then, the company's three major technology platforms have taken shape.
(3) Since 2020, research and development of the next generation of rehabilitation medical technology
The company achieved listing on the Science and Technology Innovation Board in 2020, after listing on the New Third Board in 2015. Listed on the Science and Technology Innovation Board, the company successfully raised 1.155 billion yuan, planning to invest in the research of next-generation rehabilitation medical technology and the development of difficult projects.
4. The company's future planning
According to the description of the company's annual report, the company focuses on rehabilitation as the cornerstone business, while focusing on cultivating emerging businesses, adhering to cutting-edge technology, and benchmarking against global benchmarks. The new business is mainly based on the acquisition of Keruida Laser, expanding urology-related departments and laser technology, as well as picosecond laser, radio frequency and plastic magnetic products in the field of medical aesthetics.
5. Industry development
Rehabilitation medicine, along with preventive medicine, clinical medicine and health medicine, is called the "Four Great Medicines" by the World Health Organization. Rehabilitation medical devices refer to medical devices used for evaluation, training and treatment in rehabilitation medicine, which can help patients evaluate and improve physical functions, restore physical strength, and make up for functional defects.
From the perspective of demand, the mainland has a huge number of people in need of rehabilitation, such as pregnant women, patients with mental disabilities, patients with nervous system diseases, patients with bone and joint muscle diseases, and the elderly, which has derived a huge demand for rehabilitation medical services and rehabilitation medical equipment. The company's rehabilitation products mainly focus on electrical stimulation, magnetic stimulation, electrophysiology and rehabilitation robots, which are an important part of the rehabilitation medical device industry and are the fastest growing fields in recent years.
Electrical stimulation industry
With more than 50 years of development, electrical stimulation therapy technology has been widely used in the fields of pelvic floor and postpartum rehabilitation, psychiatric rehabilitation and neurological rehabilitation, providing patients with an effective treatment pathway.
In recent years, the market size of China's electrical stimulation rehabilitation medical devices has grown steadily, focusing on pelvic floor and postpartum rehabilitation and neurological rehabilitation, and is in the process of benign development.
Magnetic stimulation industry
The magnetic stimulation instruments are mainly transcranial magnetic stimulators and pelvic floor functional magnetic stimulators. Transcranial magnetic stimulators are mainly used in psychiatric rehabilitation and neurological rehabilitation. It has significant efficacy in the treatment of depression, stroke sequelae, Parkinson's and other diseases.
According to the Guidelines for the Treatment of Parkinson's Disease in China (Fourth Edition), the number of Parkinson's disease patients in mainland China will reach 5 million by 2030, accounting for almost half of the global number of patients. In addition to drugs and surgery, rehabilitation medicine throughout the whole process is also a valuable treatment modality, which is a powerful supplement to medical treatment and surgical treatment.
Rehabilitation robot industry
Rehabilitation robots integrate many disciplines such as mechanics, computer science, cybernetics and rehabilitation medicine, which can help disabled patients recover motor function, reshape the central nervous system, replace or assist the mechanical repetitive operation of rehabilitation therapists, and provide the possibility of remote rehabilitation medicine and centralized rehabilitation medicine.
According to Frost & Sullivan data, the market size of rehabilitation robots in China was $210 million in 2018 and is expected to grow at a compound annual growth rate of 57.5%, with broad market prospects. In the field of rehabilitation robots, Weiss Medical has formed a series of sports rehabilitation robot products covering the full-cycle rehabilitation training and evaluation of the lower limbs and upper limbs, including two product series, X-walk series and X-locom.
6. Performance and valuation
The company went public in 2020, maintained growth in the first two years of listing, halved in the third year, and returned to the profitability level of 2020 in 2023.
Stock price decline analysis
The company's overall performance has basically not changed much, but the reason why the stock price has fallen by 70% is because of the killing valuation.
After the company went public, the PE-TTM went to a maximum of 150 times, and after two years of decline, the valuation fell back to a price-to-earnings ratio of around 20 times in mid-2022. However, the company's performance in 2022 has dropped sharply, and although the stock price has not fallen, its valuation has been pulled up to a high level of 50 times P/E. For the decline in performance in 2022, the company explained that the main reasons are the repeated epidemics, market and academic promotion, hospital sales, logistics and transportation and installation services have been affected to varying degrees. Judging from the 2023 performance, the company has recovered from the epidemic.
This is also a common phenomenon of A-share IPOs. Many retail investors like to speculate in new stocks, but ignore the ultra-high valuation and performance instability of new stocks.
Finally, let's look at the valuation.
Weiss Medical's current P/E ratio of 24.7x is in the low zone of its historical average. The current market capitalization is 3 billion, and the profit in 2023 corresponds to a price-to-earnings ratio of 22 times. As a medical device company, this valuation is not very high. If profits can return to 2021 levels this year, valuations will fall to around 17x P/E.
7. Summary
To sum it up:
1. Driven by factors such as the increasingly severe aging of the population and the increase in the number of people with chronic diseases, the demand for rehabilitation medical services and rehabilitation medical devices in mainland China will continue to grow.
2. The company's rehabilitation products are a fast-growing field in recent years.
3. The company's current valuation is not high.
The situation of the two medical companies has been introduced, and as for whether the overall investment is suitable or not, everyone needs to make a comprehensive assessment. You can also pay attention to what you think and learn and communicate together.