Yonghe Medical Profit Declines Due to Epidemic, Can Hair Industry Expansion Benefits Continue?

By lines of business,

① The medical business of hair transplantation achieved a rev of 550 million yuan/YOY-29.9%, accounting for 73.9%/ YOY-1.1pct of total rev. The number of hair transplantation surgery was 21,000 people/YOY-28.7%, and the unit price was 26,314 yuan/YOY-1.7%, mainly due to the repeated impact of local COVID-19 epidemic. More than 30 of the company's facilities have been suspended due to the quarantine measures.

②The rev of the medical and nursing service is 190 million yuan/YOY-26.2%, accounting for 25.1%/ YOY-1.0pct of the total rev. The number of nursing service operations is 38,000 people/YOY-27.0%, the unit price is 4886 yuan/YOY +1.2%, and the repurchase rate is 25.5%/YOY +3.3pct.

In terms of expanding stores, up to 1H22, the company has 57 Yonghe hair transplantation/FaZhiChu institutions for women, covering 56 cities, with a net increase of 3 since 2022, mainly concentrated in 3-tier cities; And five independent Spence stores, a net gain of 2 since 2022. It is expected that by the end of 2022, the number of hair transplantation medical institutions in China will be close to 70. In addition, the two comprehensive hair hospitals currently under construction in Beijing and Shanghai will also be completed and start operation this year. The company gradually expands from the hair transplantation market to the hair service market.

Up to 1H22, the company has a total of 1198 professional medical team members, including 291/844/63 doctors/nurses/pharmacists and examiners; Compared with the end of 2021, the total number declined by 23, including +32 doctors, -49 nurses, and -6 other professionals. In H2, the company launched a strong medical plan to strengthen the construction of medical team. The plan mainly includes strengthening the technical realization ability of the doctor team, strengthening the diagnosis ability of hair diseases, and highlighting the value of doctors.

In terms of profitability,

1) Gross profit margin: 1H22 achieved a gross profit margin of 64.2%/ YOY-9.4pct, mainly due to the repeated impact of COVID-19 on the company's operation, and the rigid cost of rent and personnel compensation. By business, the gross profit margin of hair transplantation medical service is 64.4%/ YOY-8.1 PCT, and the gross profit margin of medical maintenance service is 65.0%/ YOY-12.8 PCT.

2) Expense ratio: 1H22 Company's sales/management/R&D expense ratio was 51.9%/15.1%/1.2%, with yoy change of -3.0/+6.5/+0.6 PCT. The decrease in sales expenses ratio was mainly due to the impact of the epidemic, so the company strengthened its control of sales expense. The increase in management was mainly due to the expansion of the company's management team and the restructuring of the position structure.

3) Net profit rate: 1H22 achieves a net profit rate of 2.4%/ YOY-1.5PCT.

Yonghe Medical, as a leading chain hair transplantation institution in China, has established first-mover advantages through standardized and transparent operation, and built high-quality brand power through continuous pre marketing investment, and company will continue to absorb industry expansion benefits in the future. Minsheng Securities expects company realizes net profit of 90/210/310 million yuan in 22-24 years, with yoy growth of -22%/125%/49%, corresponding to PE of 41/18/12X in 22-24 years, maintaining the "Buy" rating.