JXR is a leading ARS(Assisted Reproductive Service) provider in China and the United States. It is the largest privately owned ARS provider in China with only a 3.1% penetration rate. The growth prospect in China is substantial.
JXR is one of the pioneers in the ARS industry in both China and the United States. It has consistently delivered ARS with superior success rates, which is an important benchmark in the ARS industry. The assisted reproductive medical facilities in their network in China and the United States have attained success rates higher than the national average in China and the United States, respectively, In addition, HRC Fertility had higher success rates in every age group as defined by the United States Centers for Disease Control and Prevention. They are very good at what they do.
JXR is in a good track and the management is growth driven, vertically through scientific research and horizontally through acquisition(recently expanded into Laos). JXR has a top line 4 years CAGR of 47% and has been free cash flow positive since inception. It has around 3.3bil hkd in net cash and a current ratio of 5.6x. It has enough cash and cash generative features to continue to expand once or twice a year, every year.
The Group has established a strong reputation, based on superior success rates, which they have achieved through accumulating decades of experience and know-how and through recruiting and retaining of a group of renowned physicians, who are linked with share equity ownership.
Despite China ending its one-child policy in 2016, the country’s falling population growth rate has not rebounded. Chinese citizens of child-bearing age have largely postponed starting families due to career and cost considerations. And as more couples seek pregnancy later in life, up to 25% of those couples reportedly suffer from infertility. These factors are beneficial to ARS market players like Jinxin Fertility and will continue to provide an accelerated tailwind.
According to public information, Jinxin Fertility's current shareholder list includes well-known domestic and foreign funds such as Warburg Pincus, Hillhouse, Blackrock, E Fund, and China Huitianfu.
JXR recently held an investor open day which was an eye opener. They gave us a preview on their current status. As of June this year, the HRC business has recovered much faster than its local peers, the number of HRC treatment cycles in the local area has maintained a month-on-month growth, reaching a new high in October.
As health incidents are brought under control, the number of international treatment cycles for HRC is expected to rebound significantly next year. In addition, HRC is studying several mergers and acquisitions. More importantly, there was a recent massive stake increase by Hillhouse Capital(at HK$10.50 per share). That is why its share price has jumped 50% just in the month of Nov 2020. This reflects that well-known long-term investors continue to be optimistic about the future development of Jinxin Fertility.
This IVF theme is consistent with the direction of the country's major policies. In the context of declining birth population, no matter how much money is made in assisted reproduction, the policy will not suppress it.
Since the establishment of the company, through mergers and acquisitions, Jinxin's network hospital has expanded from Chengdu to Shenzhen, the United States, Laos and Wuhan. Thanks to the company's excellent operating experience, strong technical level, good brand awareness and sufficient cash reserves, I believe the mergers and acquisitions will continue to drive the company's business expansion. I expect the company to complete one or two mergers and acquisitions each year, including mergers and acquisitions in mainland China and overseas. In addition, the company should continue to expand its operating capabilities in Shenzhen to further enhance its leading position in the Guangdong market.
The human desire to procreate coupled with genomic selection might even encourage young healthy couple to go the ARS route in the future. A business with a wide moat(government grant license) and potential vertical and horizontal scalability. See how it goes.
Full disclosure, I have vested interest in this stock and I'm currently up 36.55%.
Snap shot of my portfolio performance as of today: Total profit for 2020: S$11,923
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