Strong medical services revenue
- ECH’s FY22 net profit was 36%/46% below our/Bloomberg consensus forecasts, impacted by the prolonged Omicron outbreak in HK.
- M&As will continue to lead strong revenue growth in medical services.
- Reiterate Add, with a lower TP of HK$12.03 due to c.12%/26% FY23F/24F EPS cuts.
2H22 net profit fell below on prolonged Covid-19 impact
EC Healthcare’s (ECH) 2H3/FY22 (Oct 21 to Mar 22) was badly hit by the fifth wave of
Covid-19 in HK given the compulsory closure of its beauty parlours (7 Jan to 20 Apr 2022).
ECH’s 2H22 revenue grew 15% yoy to HK$1.48bn, mainly driven by medical services
(+56% yoy), while aesthetic medical and beauty services revenue fell 33% yoy, no thanks
to the closure of beauty services for 84 days. 2H22 core net profit fell 51% yoy to HK$46m
due to decreased clinic visitors. FY22 net profit was HK$198m, up 2% yoy, driven by strong
growth in medical services (revenue +76% yoy in FY22) and new contribution from
veterinary business, as well as strong aesthetic and beauty services in 1H22 (revenue
+62% yoy in 1H22).
M&As to continue to lead medical services segment growth
Total service floor space increased 34% yoy to 540k sq ft in FY22; medical services
expanded to 29 specialist disciplines and full-time/exclusive registered practitioners
increased to 251, driven by M&As and organic growth. ECH spent HK$641m and
completed a few major acquisitions for veterinary, dental, specialists and pain & wellness
businesses in FY22. The company also acquired a veterinary hospital in Apr 2022 and a
health screening business in May 2002 (Fig 5 for details). Meanwhile, ECH opened two
imaging centres and the flagship pain & wellness centre and also added one floor for
ophthalmology, obstetrics and gynaecology in the headquarters, Langham Place. Given
the good M&A track record, which helped to improve profitability for its acquired
businesses, supported by strong marketing and customer base, we believe M&As will
continue to boost its medical services business in FY23-24F. We estimate medical services
to achieve c.25% revenue CAGR in FY23-25F (excluding potential M&As).
Aesthetic and beauty services recovering in FY23F
We expect a strong recovery in aesthetic medical and beauty services in FY23F (we
estimate 23% yoy growth) on easing Omicron impact, underpinned by robust domestic
demand and government consumption voucher. We cut our FY23F/24F EPS forecasts by
c.12%/26% to reflect slower growth in aesthetic medical and beauty services due to further
delays in the opening of China-HK borders on prolonged Covid-19 in HK. Nevertheless,
we expect strong business recovery in all segments in FY23F (EPS +83% yoy), driven by
rapidly-growing medial services (organic growth and M&As) and improving profitability due
to the recovery in aesthetic medical and beauty services business.
Reiterate Add with lower TP HK$12.03
Our TP falls to HK$12.03, based on 30x CY23F P/E, still 1x PEG, reflecting the long-term
earnings outlook. Share price catalysts include China-HK border reopening in summer
2022 and strong local demand for aesthetic medical and beauty services. Risks: further
delays in the reopening of China-HK border.