Policy Certainty & Performance Resilience: Jinxin Reproductive Market Pioneer?

As a rare asset in the Hong Kong stock market, Jinxin Reproductive has always been a focus of market investors.

However, in recent years, the company's performance in the capital market has been under pressure, but if we look at the fundamentals, Jinxin Reproductive's overall performance is still commendable. In addition, the assisted reproductive industry is facing policy benefits, especially in provinces that have included assisted reproduction in medical insurance, the inclusion of medical insurance has greatly increased the business volume of assisted reproduction.

So, what are the market expectations behind the lack of resonance between fundamentals and valuation? How should we view the current opportunities in the face of the certainty of favorable industry policies?

1. Institutional profitability continues to rise, continuously realizing operational results.

Looking at the mid-term financial report recently released by Jinxin Reproductive, it can be said that this semi-annual report card still shows a steady and solid business condition.

Financial report data shows that in the first half of the year, Jinxin Reproductive achieved a revenue of 1.44 billion yuan, a year-on-year increase of 8.2%; adjusted EBITDA of 418 million yuan, a year-on-year increase of 6.1%; adjusted net profit of 260 million yuan, a year-on-year increase of 1.8%.

While core performance indicators remain stable, the company's operating cash flow performance is also quite good, which directly shows its strong internal blood-making ability. In the first half of the year, its net cash from operating activities reached 384 million yuan, a year-on-year increase of 14.0%.

Facing a more complex external market environment, Jinxin Reproductive continues to maintain a solid financial position and continuously optimizes its debt structure. In the first half of the year, the company's interest-bearing debt ratio decreased to 13.7%, a year-on-year decrease of 0.6 percentage points.

In domestic and foreign business, the company has developed different development strategies based on the regional characteristics and development stages of its medical institutions to promote the upward development of domestic and foreign businesses.

In terms of domestic businessFor established institutions, Jinxin Reproductive Health takes the Chengdu model as a blueprint to create a one-stop service for families centered around assisted reproduction, providing fertility and health management. The company strengthens its core departments such as reproductive medicine and obstetrics, continuously enhances the construction of diversified disciplines, expands its business scope, and increases brand influence to attract a broader customer base, thereby reserving patients with longer core business conversion cycles.

For incubating institutions, Jinxin Reproductive Health continues to focus on the core business of assisted reproduction, strictly promotes the improvement of the quality and safety system, and changes the operational model from marketing-driven to operation-driven.

Looking at the overseas situation:

In the United States, the company continues to anchor the development trend of the U.S. assisted reproduction industry, constantly strengthens the doctor strategy and 36-year brand history. With the expansion of the doctor team, it has also laid a solid foundation for the expansion of HRC.

In 2023, HRC welcomed 4 new doctors, and it is expected that 5 new doctors will join in 2024, with the number of HRC's own reproductive doctors expected to reach 24 by the end of the year. In the first half of 2024, HRC achieved a year-on-year increase of about 22% in the total number of cycles. The integration of new and old doctors not only promoted the increase in HRC's business volume but also provided a reserve of doctor talent for HRC's expansion. To date, HRC Medical has 4 core clinics and 7 satellite centers in the Los Angeles and San Diego areas of the United States. At the same time, actively adapting to the development trend of egg freezing in the United States, HRC has launched an egg freezing package product, further increasing HRC's influence in the U.S. assisted reproduction market.

In addition, in other overseas regions outside the United States, Jinxin Reproductive Health is also adapting to local conditions, according to the characteristics of each region, to promote the development of its overseas business. Among them, the Laos Jinrui Medical Center has created a "small and beautiful" high-efficiency self-built operation model, which has achieved profitability in less than a year of operation. This provides a feasible reference model for the company's expansion in other emerging markets in Southeast Asia.

It is worth mentioning that in April of this year, Jinxin Reproductive Health also signed a contract with Morula, the largest assisted reproduction group in Indonesia, becoming its largest strategic investor. Morula has a wide service network in Indonesia, with 10 IVF clinics. Through this cooperation, Jinxin Reproductive Health will be able to inject its advantages in medical technology, doctor training, information technology, and customer relationship management into Morula, further improving its service quality and operational efficiency. As the first step for Jinxin Reproductive Health to enter the Southeast Asian market through strategic investment, this not only helps the company to develop deeply in the Indonesian market but also provides valuable experience and models for future strategic expansion in other Southeast Asian countries.

It can be seen that through innovative operation models and strategic investment and cooperation, Jinxin Reproductive Health is gradually building a global assisted reproduction service network to meet the needs of patients in different regions and promote the company's continuous growth and international development.

2. Policy and industry innovation drive, both certainty and growth potential

Overall, whether it is at the performance level or the business strategy level, Jinxin Reproductive Health has clearly demonstrated its path to high-quality development to the outside world. At the same time, the company is also facing a series of favorable catalysts, bringing continuous certainty and high-growth development opportunities to the company.Firstly, policies are continuously generating a positive impetus for the development of the assisted reproductive industry.

From the perspective of the domestic market, industry-friendly policies are being implemented one after another. The certainty of medical insurance favorable policies can be said to have brought an optimistic expectation for the future business development of Jinxin Reproductive Healthcare.

It is worth mentioning that, at present, under the promotion of the National Medical Insurance Administration, 19 provinces and regions including Beijing, Guangxi, Inner Mongolia, and Gansu, as well as the Xinjiang Production and Construction Corps, have included assisted reproductive technology in the medical insurance reimbursement scope. Sichuan, Guangdong, Hubei, and Yunnan, where the company's domestic subsidiaries are located, have all issued solicitation letters related to the inclusion of assisted reproductive technology in medical insurance reimbursement or pricing, and it is expected to be implemented in the near future.

With the implementation of medical insurance, the demand for assisted reproductive technology is expected to be released, which will drive a significant increase in the number of infertility patients seeking treatment, providing momentum for the continuous growth of the assisted reproductive industry.

According to the "China Assisted Reproductive Research Report 2023" released by Yuwa Population Research, it mentioned that 55.7% of infertile patients gave up using assisted reproductive treatment due to high prices. When the subsidy ratio reaches 20%, the willingness of potential patients to undergo treatment will increase from 71% to over 80%.

In addition, looking at the regions that have already included assisted reproductive technology in medical insurance, the policy has greatly stimulated the number of assisted reproductive consultations after its introduction. Previously, a person in charge of the Guangxi Medical Insurance Bureau responded to an interview with China Youth Daily, mentioning that within 5 months after the policy was implemented in November 2023, the outpatient volume of assisted reproductive institutions in the entire autonomous region reached 607,700 times, a year-on-year increase of 35.6%.

Furthermore, focusing on the American market, the innovation in the assisted reproductive industry is surging, and the continuous innovation in the industry also brings greater imagination for the future development of HRC.

At present, whether it is product innovation, operational model innovation, or payment method innovation, all have brought continuous driving force to the industry's development.Taking Progyny, which has secured the "top spot" in the US infertility insurance industry, as an example, the company has driven innovation in payment methods. It provides fertility benefits solutions such as IVF for employees of corporate employers by combining technology, insurance, and medical practices to offer personalized treatment plans and financial support. This has allowed it to establish a strong market position in the field of assisted reproduction.

Furthermore, in terms of product and operational model innovation, KindBody is at the forefront. It offers reproductive health solutions such as IVF and egg freezing through online and offline channels and partnerships, which not only increases the accessibility of services but also reduces costs through technological means, making advanced reproductive services more affordable for more families.

In summary, active policy promotion and continuous industry innovation have brought significant development opportunities for assisted reproductive companies like Jinxin Reproductive Healthcare. As market demand is released and products, technologies, and service models continue to innovate and progress, the market opportunities in the assisted reproductive industry remain promising.

3. Conclusion

At present, as the Federal Reserve enters a rate-cutting cycle, the performance of the Hong Kong pharmaceutical sector is continuously看好 by market institutions.

Recently, a research report from CITIC Securities pointed out that, considering the industry performance during the rate-cutting cycle, it is recommended to focus on the healthcare industry that benefits from the reduction of borrowing costs. In fact, during past rate-cutting cycles, companies with stable cash flows are more likely to stand out. On the one hand, this is due to their defensive attributes, and on the other hand, it is due to the potential for continuous expansion brought by their solid cash flows.

As a leading company in the assisted reproductive industry, Jinxin Reproductive Healthcare's past financial performance has demonstrated that the company has a stable cash flow and good business growth capabilities. Through steady expansion both domestically and internationally, as well as continuous promotion of innovative businesses, the company has built a strong brand influence and market competitiveness in the field of assisted reproductive services.

At the same time, it can be seen that the company has shown a positive side in both management buy-ins and share buybacks, continuously releasing market confidence.

It is worth mentioning that on August 30th, the company spent HK$9.57 million to repurchase 4 million shares on the market. Prior to this, at the end of July, the company had also spent HK$21.84 million to repurchase 9 million shares.

Through consecutive share repurchase actions, it is not difficult to see the company's confidence in its own value and its optimistic expectations for future development prospects.