The first wave of "psychiatric hospitals" rushed A, and Corning Hospital was so tossed and turned?

Corning Hospital (02120.HK), the largest private psychiatric hospital in China, rose 12.2% against the market after announcing its operating data for the third quarter of 2021, closing at HK$34.95 on October 6, with a market value of HK$2.607 billion.

From the data of the third quarter of 2021 alone, the number of inpatient bed days increased by 20.2% year-on-year, but the average total daily expenditure per bed in hospital decreased by 0.8% year-on-year, and the author roughly estimated that its hospitalization income may increase by about 19% year-on-year; in the outpatient business, the number of outpatient visits increased by 53% year-on-year, but the average total expenditure fell by 11.9% year-on-year, and the author estimated that the outpatient business revenue or increased by 35% year-on-year. Combining the two businesses, the author estimates that the revenue of its own hospital business may increase by more than 20% year-on-year.

In comparison, the company's hospitalization business in the third quarter was inferior to that in the first half of the year, with the annual increase in the number of inpatient beds and total expenses per bed in the first half of the year reaching 27.67% and 3.27%, respectively. However, in terms of outpatient business, the growth rate of outpatient visits in the third quarter has improved significantly, in contrast, the number of outpatient visits in the first half of the year increased by 41.34% year-on-year, but the average expenditure decline in the third quarter further expanded, higher than the year-on-year decline of 8.18% in the first half of the year.

The performance of the third quarter is acceptable, although it is one reason for the rise in stock prices, but the company's recent restart of the A-share listing plan may also attract the attention of the market.

A go-to-market trip to Corning Hospital

As the first listed "psychiatric hospital", Corning Hospital in 2015 in the Hong Kong stock market list had been in the limelight, the first day of listing that was a sharp rise of 27%, but the second day after soaring to 51.60 Hong Kong dollars, it did not break through this high level, until June this year, the stock suddenly changed, June 24 issued an announcement announced that after the re-sale of A shares, its stock price rose to a record high of HK$55.

In fact, this isn't the first time Corning Hospital has raised back to A.

After raising HK$560 million in 2015 from its Hong Kong stock market for hospital expansion, renovation and upgrading, IT infrastructure and corporate operations, Corning Hospital proposed to issue A shares on the Shanghai Stock Exchange in August 2016 to enhance its influence. However, due to the lack of approval from the authorities, it was announced in January 2018 that it was cancelled.

In June this year, Corning Hospital revived the old matter and restarted the A-share issuance plan, only this time to shift to the ChiNext board of the Shenzhen Stock Exchange. The company explained the rationale for the A-share offering: 1) further enhancing its reputation and influence through listing in both places, 2) expanding financing channels, and 3) providing liquidity for its domestic shares.

In connection with the announcement, Corning Hospital also announced the sale of ITSA, which it acquired in August 2016, which holds investment real estate projects. Corning Hospital pointed out that because the regulator did not support the financing and listing of housing-related business companies in China, in order to be able to successfully list, it decided to sell Wenzhou NUS to divest the existing housing-related business.

The author notes that in its interim results for the year ended 30 June 2021, there are no investment properties, which shows that the company is very tight on listing matters.

Why is Corning Hospital so tossed?

When the Hong Kong stock market was listed in 2015, Corning Hospital's market value was HK$2.725 billion, and almost six years later, its market value is only HK$2.607 billion.

When it went public in 2015, Corning Hospital's network of psychiatric facilities consisted of five of its own psychiatric specialty hospitals and managed four facilities, managing these facilities through management agreements and receiving management service fee income. As of the end of 2014, the company operated 1,760 beds in its own hospital and had total assets of 372 million yuan.

By the end of June 2021, the number of its own hospitals in Corning Hospital has increased to 25, including an independent Internet hospital, Yining Psychological Internet Hospital, and the number of self-owned hospital beds in operation has increased to 8328, which is 4.7 times that of the pre-listing period, and the total asset size has reached 2.41 billion yuan, which is 6.5 times that of the pre-listing.

The expansion of capacity has not reduced the utilization rate, which has remained above 80% despite the rapid increase in the number of beds, as shown in the figure below. The usage rate in the first half of 2021 was as high as 87.27%.

The same is true of the outpatient business, where the number of outpatient visits continues to climb, as shown in the table below.

It can be seen that the market demand for its services is very high.

From the above capacity data, it can be seen that in the past six years since its listing, the expansion rate of Corning Hospital has never stopped. From the cash flow trend, it can be seen that the company's operating activities continue to generate net cash inflows, but the net cash outflows from investment activities are also continuous, as can be seen from the chart below, the net cash outflows of multi-period investments are significantly higher than the net cash inflow scale of operating activities, which will eventually put pressure on its finances.

As of June 30, 2021, Corning Hospital held RMB297 million in cash and cash equivalents, but its interest-bearing loans amounted to RMB862 million, of which RMB377 million should be repaid within one year, making it a bit tight. Therefore, the expansion of financing channels will solve the problem of funds for them and supplement the ammunition for future expansion.

Corning Hospital plans to raise 300 million yuan through the issuance of A shares, more than half of which will be used for the taizhou central hospital construction project, about one-third for the Wenzhou elderly care center project, and the remainder for the research and development project of the construction of the social psychological service system, as shown in the following table.

More importantly, the valuation of A shares is higher, coupled with the concept of the first share of mental illness, Corning Hospital's return to A listing may be expected to increase its valuation.

At present, there are many hospital operators listed in A-shares and Hong Kong stocks, including ophthalmic hospitals, general hospitals, beauty institutions, etc., but the author found that the valuation of such medical service stocks in Hong Kong stocks is not high, mainly because of lack of liquidity, inactive transactions are difficult to provide pertinent value judgments.

In the case of 01515.HK, the largest private hospital group, its revenue for the 12 months ended June 2021 reached RMB3.615 billion and its market capitalization was HK$7.715 billion.

In contrast, tongce medical (600763.SH), an A-share listed company engaged in oral medicine but also operates women's and children's hospitals, has a total revenue of 2.652 billion yuan in the last 12 months, which is only 73% of China Resources Medical, but its market value is as high as 96.84 billion yuan, which is 15 times that of it; another regional general hospital operator, International Medicine (000516.SZ), has lost 589 million yuan in the last 12 months, with a market value of 25.9 billion yuan.

Corning Hospital's net profit in the past 12 months is still 83.92 million yuan, the company's current price-to-sales ratio of 1.82 times, price-earnings ratio of 25.73 times, price-to-book ratio of 1.68 times, far lower than the A-share hospital operation stocks, in the A-share listing or can win a higher valuation for it.

epilogue

Corning Hospital was established in 1996 by Guan Weili and others. After the Listing of hong Kong stocks in 2015, Guan Weili was the majority shareholder, holding more than 32% of the interest, and Li Zhenfu's Telford Capital and GAC Capital's Telford Fund held more than 21% of the interest, in addition, it also attracted investment from investment managers such as Citi.

In the first half of this year, the iron fan Telford Fund continued to reduce its holdings in Corning Hospital, and transferred part of its equity to Wonder Impact Equity Investment (Jiaxing) Partnership and the Central Enterprise Rural Industry Investment Fund, and by the end of June, the shareholding of The Telford Fund had dropped to 7.22%, but on the other hand, Corning Hospital's shareholder lineup was further diversified.

If the A-share listing can really be completed, Corning Hospital's shareholder lineup will be larger, and what kind of storm will this scarce target set off? Worth looking forward to.

This article originated from Caihua Network