华润凤凰医疗(01515.HK):Your margin is my opportunity

  机构:德意志银行

  评级:BUY

  目标价:13.8港币

  DB view post NDR 

  We hosted CEO/CFO for NDR last Friday, and felt more comfortable with the new management team. While majority of the questions from investors are focused on Yanhua and near-term risk management, we believe the two key issues for value creation are 1) whether the new management team could execute more M&A; 2) whether the new team could extract value from IOT contracts as effectively as the previous team.

  What if Honghui walks away? While Honghui is the largest GPO and contributes to more than 70% profit for the listed co, CRP could replace Honghui within days if that happens, according to management. We believe there could be near-term hiccups, if it were to happen. That being said, we believe the chance is relatively low.

  What if other hospitals in Beijing terminate GPO contracts? We believe the risk is quite low, as political/economic situation has changed profoundly in the past 2-3 years vs. 2010 when these contracts were locked.

  Will Yanhua terminate management contract too? We conservatively modeled this scenario already, while CRP indicated the contract is still in place, while expecting at least RMB36m management fee (RMB27m profit after tax) in 2H17.

  What is the impact on GPO contract termination from Yanhua? Net profit generated from this hospital on GPO was RMB57m in 2016.

  Will CRP accelerate asset injection? We continue to expect this to happen, however we assume acquisition multiples (on P/E basis) would be no less than current trading multiple on T+1 basis. We have high conviction such deals would be accretive on T+3 basis.

  Maintaining PT of HKD13.8; Buy on weakness; risks 

  Our PT is based on 18x 2018E EBITDA. We believe 18x is justified, as its Asian peers are trading at 18x with 6% growth in 2019E (vs. 17% for CRP). We do not believe current stock price reflects significant advantage for CRP to execute more deals. Key risks include impact from zero mark policy, delayed integration of newly acquired hospitals and reimbursement control.

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