Global Healthcare Analyst

Tina Banerjee

Equity Bottom-Up

Hygeia Healthcare Group / Equity Bottom-Up

<ul>
<li>In 1H24, <a href="https://www.smartkarma.com/entities/hygeia-healthcare-group" target="_blank" data-smartkarma-citation="entities:28875:1" rel="noopener">Hygeia Healthcare Group (6078 HK)</a> reported revenue growth of 35% YoY to RMB2,382 million, mainly driven by a 37% YoY growth in hospital business.</li>
<li>Hygeia’s gross profit margin contracted 60bps YoY to 31.8%. Lower government grant led to 230bps operating margin squeeze to 21.6%.</li>
<li>The share price of Hygeia Healthcare has gone down almost 56% in the last one year. Accelerated organic growth and strengthening of margins are crucial to boost valuation.</li>
</ul>


In 1H24, Hygeia Healthcare Group (6078 HK) reported revenue growth of 35% YoY to RMB2,382 million, mainly driven by a 37% YoY growth in hospital business.
Hygeia’s gross profit margin contracted 60bps YoY to 31.8%. Lower government grant led to 230bps operating margin squeeze to 21.6%.
The share price of Hygeia Healthcare has gone down almost 56% in the last one year. Accelerated organic growth and strengthening of margins are crucial to boost valuation.


Hygeia Healthcare Group (6078 HK): Growth and Margin Concerns Plague Inherent Valuation

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Periscope Analytics

Periscope Analytics focuses on event-driven trades across Asia Pacific and provides comprehensive, timely and systematic coverage of index changes to major Asia Pacific indices in a structured manner.

The analysis includes forecasted inclusions and exclusions to all major Asian indices that have significant amount of tracking assets, including estimates of passive buy/sell flow on the stocks. The service also provides commentary and impact of market consultations, ground rule changes, and other events (IPOs, spin-offs, M&A) that could lead to index changes and passive flow.

Periscope Analytics works with multi-strategy hedge funds, proprietary trading firms, stat arb trading groups and long-only investors that invest and trade in the Asia Pacific region with the data being used to trade index rebalances, avoid pre-positioning and passive flow, and to time entry into and exit from stocks.

Event-Driven Trades Across Asia Pacific

Event-Driven

<ul>
<li>There are a bunch of stocks listed in Hong Kong that have underperformed the <a href="https://www.smartkarma.com/entities/hang-seng-china-enterprises-index" target="_blank" data-smartkarma-citation="entities:22900:1" rel="noopener">HSCEI INDEX</a> and their peers and could be deleted from global passive portfolios in August.</li>
<li>The deletion from passive portfolios will lead to a liquidity event at the end of August where passive trackers will need to sell multiple days of ADV.</li>
<li>There has been a big jump in cumulative excess volume in some stocks and the A/H premium on a lot of the names has jumped over the last few months.</li>
</ul>


There are a bunch of stocks listed in Hong Kong that have underperformed the HSCEI INDEX and their peers and could be deleted from global passive portfolios in August.
The deletion from passive portfolios will lead to a liquidity event at the end of August where passive trackers will need to sell multiple days of ADV.
There has been a big jump in cumulative excess volume in some stocks and the A/H premium on a lot of the names has jumped over the last few months.


Hong Kong: Stocks Facing the Passive Boot in August

HK/China Healthcare Analyst (ex-Fosun Pharma)

Xinyao (Criss) Wang

<ul>
<li>According to Hygeia’s management, the 25% growth in previous guidance for 2024 would be exceeded. 24H1 would maintain a growth rate of 40+%, and the growth in 24H2 would accelerate.</li>
<li>However, progress of some projects is slower than expected, so a growth rate of 25%+ in performance forecast seems aggressive.After all, downward adjustment of performance guidance again is very uncomfortable.</li>
<li>P/E of 30-40 is reasonable range in short term. So, Hygeia is undervalued.In long term, revenue growth could fall to 15-20% because the contribution of M&amp;A to performance would decline.</li>
</ul>


According to Hygeia’s management, the 25% growth in previous guidance for 2024 would be exceeded. 24H1 would maintain a growth rate of 40+%, and the growth in 24H2 would accelerate.
However, progress of some projects is slower than expected, so a growth rate of 25%+ in performance forecast seems aggressive.After all, downward adjustment of performance guidance again is very uncomfortable.
P/E of 30-40 is reasonable range in short term. So, Hygeia is undervalued.In long term, revenue growth could fall to 15-20% because the contribution of M&amp;A to performance would decline.


Hygeia Healthcare Group (6078.HK) - High Growth in 2024 Is Not Guaranteed

Asset Allocation & Fund Positioning, Copley Fund Research

Steven Holden

Asset Allocation & Fund Positioning

Copley Fund Research

Copley Fund Research provide research and data on asset allocation among Global and Emerging Market equity funds.  The analysis details absolute and relative positioning across countries, sectors and industries together with highly granular data on single stock and single fund allocations.  The data is updated monthly with time series going back to January 2011.

Global Research - Analysis of 165 prominent Global equity funds, combined AUM $335bn
GEM Research - Analysis of 127 prominent global EM equity funds, combined AUM $250bn

Asset Allocation - Global and GEM Equity

Cross Asset Strategy

<ul>
<li>Industrials and Consumer Staples Remain Top Overweights, Though Sentiment Fragile for Both.</li>
<li>Energy sector shows signs of a turnaround from long-term decline, whilst Financials remain unloved by China investors.</li>
<li>Real Estate allocations have hit record lows, with average holdings at just 2.93%, while Consumer Discretionary sector approaches all-time highs.</li>
</ul>


Industrials and Consumer Staples Remain Top Overweights, Though Sentiment Fragile for Both.
Energy sector shows signs of a turnaround from long-term decline, whilst Financials remain unloved by China investors.
Real Estate allocations have hit record lows, with average holdings at just 2.93%, while Consumer Discretionary sector approaches all-time highs.


Thematic (Sector/Industry)

<ul>
<li>China healthcare can be mainly divided into the following segments: pharmaceuticals, medical devices, medical services, To B Supply Chain. Investment logic and business characteristics in these fields are completely different.</li>
<li>“High standardization+low dependence on doctors” help pharmaceuticals gain a more favorable commercial value than medical devices in distribution process. Profit margin/cross-regional expansion capability of medical services have always been questioned.</li>
<li>The business characteristics of “To B supply chain” indicate strong cyclical characteristics due to supply rigidity and demand fluctuations, which are easily affected by changes in demand trends.</li>
</ul>


China healthcare can be mainly divided into the following segments: pharmaceuticals, medical devices, medical services, To B Supply Chain. Investment logic and business characteristics in these fields are completely different.
“High standardization+low dependence on doctors” help pharmaceuticals gain a more favorable commercial value than medical devices in distribution process. Profit margin/cross-regional expansion capability of medical services have always been questioned.
The business characteristics of “To B supply chain” indicate strong cyclical characteristics due to supply rigidity and demand fluctuations, which are easily affected by changes in demand trends.


The “Game Rule” of China Healthcare - Pharmaceuticals Vs Medical Devices Vs Medical Services

China

Hygeia is a China based oncology healthcare group.

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Hygeia Healthcare Group (6078 HK)