In the mixed Hong Kong stock market, the story of value destruction has always existed. Some listed companies themselves have a good operating base, but due to various factors, whether it is infighting among management or misdirection by operators, it is easy to make the development of an enterprise confusing.

Recently, I noticed a company with a lot of “drama sensibility” and staged a series of “drama codes” that I couldn't understand, causing even more controversy in the market. Meanwhile, the market value of Kangjian International Healthcare Group (3886.HK) has already plummeted from a high of HK$16 billion in 2015 to less than 2 billion today.

(Source: Futu Market)

So, what exactly is causing Kangjian International Healthcare's stock price to plummet? Where will this company go in the future?

1. Life should have a promising future when entering the market. Why is it now a blessing?

Health International is an established medical institution in Hong Kong. It has been established for over 30 years. It was already listed on the Hong Kong GEM as early as 2000, becoming the first medical group to directly list a chain of clinics.

The company has one of the largest and most extensive medical service chains in Hong Kong. While its business in Hong Kong continues to expand, it is also expanding to the mainland through joint ventures. By the end of 2023, it had 419 medical service points covering various subjects, with a total of 780 doctors, dentists and auxiliary service personnel.

As early as 2015, Kangjian International introduced China Life Insurance Group as a strategic investor, and with China Life Insurance's high-quality resources and brand endorsements, Kangjian International has successively accelerated its layout in the mainland and made good progress.

China Life Insurance “handover”

However, just as everyone was expecting Kangjian International to use China Life Insurance's resources to continue to make a big difference in the two places, China Life Insurance's sudden suspected “abandonment” and a series of “divine” actions by Kangjian International's management made many investors dumbfounded.

According to reports, in January 2024, China Life Insurance Group proposed to launch a special shareholders' meeting and join forces with Hong Kong's “toy king” Choi Chi-ming to restructure the board of directors of the health company. The two sides split the board seats equally, and handed over all management rights of the company to the Choi family.

So far, Choi Chi-ming has sent his only son, Cai Jiazan, as Chairman of Kangjian's board of directors and also as CEO. However, Cai Jiazan, who has a “rich second generation” aura, has no prior experience in the medical industry, and is mostly involved in the fields of toys, watches, auto repair, etc., according to the introduction materials of previous company announcements. The announcement also indicated that the annual salary of Health International will be as high as HK$5.4 million under the employment contract signed with it.

(Source: Company Announcements)

Furthermore, according to an earlier report by Sing Tao Daily, one of the board members, Li Huiling is also the younger sister of Choi Chi-ming's wife. Meanwhile, Liu Shuqing previously held positions such as personal assistant to Chairman of Cai Zhiming's company, Xuri International.

Previously, under the management of the life team, Kangjian International had a good overall development momentum, but during the pandemic, it bucked the trend.

According to financial reports, in 2021 and 2022, the company recorded revenue of approximately HK$1.48 billion and HK$1.536 billion respectively, and net profit to mother was HK$22.01 million and HK$15.289 million.　　

It is worth mentioning that in 2022, Health International also spent HK$0.47 billion to acquire Zhongzhuo Medical Holdings Limited. In 2023, Zhongzhuo's profit for the full year of 2023 reached about HK$23.5 million, contributing more than 1/3 of the profits to Health Group.

Management “change”

However, under the leadership of China Life Insurance, Kangjian International, whose business was gradually improving, experienced many changes in management in 2023. As a result, Kangjian International also began to lose money. The loss attributable to shareholders for the year reached HK$0.194 billion, which is also the highest performance loss recorded in the company's financial reports in the past three years.

(Source: Wind)

In 2023, Kangjian International's management experienced unprecedented turmoil. A total of 14 executive changes occurred during the year, including 3 changes in the chairman of the board of directors so far. It is difficult for investors not to doubt their internal management with such frequent management changes.

Among this series of changes, Chen Zhenkang's short tenure is particularly notable. He was an executive director and chairman of the board of directors of Kangjian International Healthcare, but his term of office came to an abrupt end in less than two months. According to public information, Chen Zhenkang has participated in the operation and management of dozens of companies, but unfortunately, most of his management experience has not brought significant positive results.

Furthermore, another executive, Leung Kwok-ling, was accompanied by controversy during his tenure. He previously served as the company's operating director and left office in 2023. He was also convicted of professional misconduct by the Hong Kong Medical Professional Committee this year. According to the “Hong Kong 01” report, the reason for the sentence was suspected of violating the “Code of Practice for Registered Doctors in Hong Kong” on his personal Facebook page in July 2021 by promoting the Qiao Kang Medical Center he founded. This violation happened during Leung Kwok-ling's management position at Kangjian International. The operation was also extremely frightening.

“Infighting” with the core team

While appointing flawed management, “infighting” between Kangjian International and the core team is even rarer.

As mentioned above, Zhongzhuo Medical was acquired by Kangjian International in 2023 and contributed more than one-third of the annual profit. Shortly after the disclosure of the results, on April 19 of this year, the board of directors of Kangjian International issued an announcement on the “Profit Guarantee Relating to the Acquisition Target Group”, naming and accusing “Zhongzhuo Medical Holdings Limited” and five people, including Dr. Tsang Huade of the core team, for not completing the annual performance guarantee, and plans to recover a total of HK$98 million from Dr. Tsang and others.

As a wholly-owned subsidiary of Kangjian International, Zhongzhuo Medical Holdings is its uncompromising core asset. As a high-quality asset that brings together Hong Kong's top doctors, the original intention of the Kangjian International acquisition was, on the one hand, to support Kangjian's performance, and this is also reflected in the 2023 financial report. On the other hand, its high-end medical resources can also generate important synergy for China Life Insurance to develop high-end medical insurance and other businesses in Hong Kong.

However, in the current farce of families suing their families, this not only offended famous doctors, but also made it difficult for Health International to buy good assets in Hong Kong in the future. Furthermore, the conflict between management and the medical team also makes the future of this core asset full of uncertainty. And this kind of open conflict has undoubtedly had a negative impact on the company's reputation and stock price.

As can be seen, from the “handover” of the majority shareholders to frequent changes in management to conflicts with the core medical team, corporate governance can be described as a bit unsatisfactory, and Kangjian International Healthcare seems to have fallen into an inexplicable vortex.

2. With the support of high-quality major shareholders, the layout in the Mainland and Hong Kong, what are the prospects for Kangjian International?

Although Kangjian International Healthcare has faced a series of problems in the short term, it is undeniable that this company is not bad in quality and should have a bright future.

On the one hand, Kangjian International has a long history in the field of medical services. It is one of the largest and oldest listed medical groups in Hong Kong, and its expertise is widely recognized. At the same time, its broad layout in the Hong Kong and mainland markets has also made it occupy an important position in the industry.

The business layout of Kangjian International Healthcare covers multi-level and diversified medical services from primary care to high-end multi-specialty medical services. At the same time, the layout in Hong Kong and the mainland also provides it with a wider market space. Especially in the context of an aging society, the company's hospital management and health management business go hand in hand, bringing it huge market potential.

On the other hand, China Life Insurance, as a major shareholder of Kangjian International Healthcare, has also provided solid support for Kangjian International with its high-quality resources and strong background.

With a natural link between insurance and healthcare, China Life Insurance can help Kangjian International Healthcare in business innovation and market expansion. This integration of resources will also help enhance the competitiveness and market position of Kangjian International Healthcare.

However, with a good hand, the game is now becoming more and more incomprehensible for a number of reasons, which makes people feel ashamed.

As can be seen, Kangjian International's net market ratio has also fallen to less than 0.6 times, and has completely fallen below net assets. This is enough to reflect the market's pessimistic expectations for the company's future development.

(Source: Wind)

Of course, it is undeniable that this is also at one point an indication of the undervaluation problem the company is currently facing. However, once the company can resolve a series of current problems and resume stable development, I believe this undervalued situation will definitely be broken.

3. Conclusion

Looking at it now, the shareholders are probably very divided over the current management of Kangjian International. In any case, the stability and professionalism of a company's management is particularly critical to the development of an enterprise. Only through transparent and responsible management can we rebuild market confidence and push enterprises back on the right track. And only by restoring trust can Kangjian International regain respect and win development in the capital market.

Well, for Kangjian International, the current difficult situation is probably nothing more than praying that China Life Insurance, the only major shareholder, will take steps to break through, right?