20220627-招银国际-云康集团-02325.HK-A_leading_medical_operation_service_provider_with_strong_operation_capabilities_39页_2mb

Yunkang Group (2325 HK) Summary

Core Content

Yunkang Group is a leading medical operation service provider in China, offering a comprehensive range of diagnostic testing services. The company has established itself as a key player in the medical co-development services market and is expanding its diagnostic outsourcing and non-medical diagnostic testing services. With a strong focus on innovation and standardization, Yunkang has developed a robust platform with over 2,000 tests covering more than 70% of major diagnostic categories. The company's services are supported by six major Independent Clinical Laboratories (ICLs), an outpatient clinic, and a broad network of co-development diagnostic centers.

Main Points

• Market Position:
  • Yunkang holds a 3.7% market share in China's medical operation service market (revenue-based) in 2020.
  • In the co-development medical diagnostic services market, Yunkang had a 12.5% market share in 2020.
• Services Offered:
  • Medical Co-Development Services: These are provided for hospitals within integrated healthcare systems (iHSs) to improve diagnostic capabilities.
  • Diagnostic Outsourcing Services: These cater to both medical and non-medical institutions.
  • Non-Medical Diagnostic Testing Services: These are for institutions outside the medical sector.
• Business Model:
  • Yunkang has pioneered the co-development model, which involves setting up diagnostic centers in collaboration with hospitals.
  • The company's model is supported by six operating modules: business planning, quality control, hierarchical diagnosis and treatment, marketing, smart logistics, and supply chain management.
• Growth Drivers:
  • Expansion of integrated healthcare systems in China.
  • Favorable government policies.
  • High demand for diagnostic services, especially in the wake of the COVID-19 pandemic.
• Technological Expertise:
  • Yunkang utilizes advanced technologies such as immunological detection, mass spectrometry, PCR, high-throughput sequencing, liquid chip, ultra-micro pathological morphology, and digital pathology remote diagnosis.
  • The company is the only execution partner of CLSI's healthcare business in China and has obtained ISO15189 and CAP certifications for its ICLs.
• Financial Outlook:
  • Revenue is projected to grow by 60% in FY22E, 1% in FY23E, and 3% in FY24E.
  • Net profit is expected to grow at a 28% CAGR from FY21A to FY24E.
  • Medical co-development services are forecasted to become the key growth driver, accounting for 50% of total revenue in FY24E.
• Investment Recommendation:
  • Initiated at BUY with a target price of HK$23.44, based on a DCF valuation model (WACC: 11.9%, terminal growth rate: 2.0%).
  • The target price represents a +37.24% upside from the current price of HK$17.08.

Key Information

• Market Growth: China's medical operation service market is expected to grow from RMB30.7bn in 2020 to RMB47.9bn in 2025, at a CAGR of 9.3%.
• Network Expansion: As of 25 Apr 2022, Yunkang operates 322 co-development diagnostic centers, covering over 700 medical institutions across 20 provinces.
• Customer Loyalty: Over 60% of major diagnostic outsourcing service customers have been working with Yunkang for five years or more.
• Strategic Focus: Yunkang plans to expand its co-development services in pathology, genetic, and infectious disease laboratories for iHSs.
• Regulatory and Quality Standards: The company has obtained international and domestic accreditations, including CLSI, CAP, and ISO15189, enhancing its credibility and market position.

Investment Risks

• Operation Risk: Relates to service marketing and customer retention.
• Regulatory Risk: Involves obtaining and maintaining licenses and permits.
• Competition Risk: The market is competitive, with potential challenges from other service providers.

Financial Highlights

Market Potential

• The Chinese healthcare service market has significant growth potential, driven by the need for better diagnostic capabilities and resource allocation.
• The co-development diagnostic testing services market is expected to grow from RMB2,200.9mn in 2020 to RMB5,903.4mn in 2025, at a CAGR of 21.8%.
• Yunkang is well-positioned to benefit from this growth due to its established network, expertise, and innovative business model.

Conclusion

Yunkang Group is a strong contender in China's medical operation services market, with a solid foundation in diagnostic testing and a growing co-development business model. The company's expansion and strategic focus on key diagnostic areas, combined with its commitment to international standards, position it for continued growth and success. The initiation at BUY reflects confidence in its future performance and market potential.