Guangdong Kanghua IPO: Concentration Risk and More Track Record Needed

Portfolio Manager,  Equity Long Short Fund, Thirdrock Capital 

Shawn Tan

Portfolio Manager,  Equity Long Short Fund

Thirdrock Capital 

Equity Bottom-Up

Guangdong Kanghua Healthcare / Equity Bottom-Up

<p>Kanghua manages a few hospitals but it depends mainly on its flagship hospital – Kanghua Hospital, which is a leading Class 3 general hospital located in a central part of Dongguan city in Guangdong province.  It has been benefiting from a strong reputation, increased patient flow from neigbouring high cost cities like Shenzhen, and an increased offering of premium services for its more affluent clients. </p><p>It suffers from a short listing history/ limited coverage, as well as a dependency on its flagship hospital.  But it's very cheap at 16x 18E PE with net cash at 30% of market cap.  With a plan to extend its premium services and to buy more hospitals, this stock could re-rate in the coming year. </p>

Kanghua manages a few hospitals but it depends mainly on its flagship hospital – Kanghua Hospital, which is a leading Class 3 general hospital located in a central part of Dongguan city in Guangdong province.  It has been benefiting from a strong reputation, increased patient flow from neigbouring high cost cities like Shenzhen, and an increased offering of premium services for its more affluent clients. It suffers from a short listing history/ limited coverage, as well as a dependency on its flagship hospital.  But it's very cheap at 16x 18E PE with net cash at 30% of market cap.  With a plan to extend its premium services and to buy more hospitals, this stock could re-rate in the coming year. 

Kanghua: Cheap Chinese Healthcare Play with Optionality