Strong Surge in Net Profit and Sales Expenses: How Is C-Mer Eye Care's 2019 H1 'Northward Expansion' Faring?

EO Healthcare, August 28: Last night,C-MER MedicalReleased the 2019 interim report. During the reporting period, it achieved a total revenue of HK$265 million, a year-on-year increase of 37.6%; the adjusted net profit for the period was HK$33 million, a year-on-year increase of 135.9%.

Revenue, Net Profit, and Sales Expenses All Increased

C-MEROphthalmologyEstablished in 2012, the company listed on the Hong Kong Stock Exchange last January. It maintained a high profile from its inception to its IPO. On one hand, its founder, Professor Shun-Cheung Lam, is highly decorated and enjoys considerable prestige within the industry. On the other hand, C-MER Medical has achieved solid financial performance in Hong Kong and Shenzhen within just a few years of its establishment. At the time of its listing, Ma Huateng also purchased shares to endorse the company.

According to media reports at the time, C-MER Medical’s initial public offering (IPO) was oversubscribed by 1,500 times, marking the highest retail subscription multiple for Hong Kong-listed new shares with a deal size of US$50 million in nearly 11 years. In the days following its listing, the stock price surged from its issue price of HK$2.90 to a high of HK$19.90.

However, its performance last year was not particularly impressive, with a net profit of only HK$43 million, representing a mere 6.07% increase. In the first half of this year, C-MER Medical’s performance was evidently satisfactory, marked by a substantial growth in net profit. The announcement stated that the significant rise in net profit was primarily attributable to increased revenue and the improving financial performance of its Beijing hospital.

By Category,C-MER Medical's revenue is mainly derived fromMedical Servicesand the sale of vision aids (such as spectacles and lenses). In the first half of 2019, revenue from ophthalmic medical services amounted to HK$245 million, representing a year-on-year increase of 36.8%; revenue from the sale of vision aids totaled HK$19 million, representing a year-on-year increase of 47.7%.

Revenue from ophthalmic services is primarily divided into two categories:1. Consultation fees and medical service charges; 2. Surgical fees. During the reporting period, revenue from consultation fees and medical service charges totaled HK$89 million, representing a year-on-year increase of 21%; revenue from surgical fees amounted to HK$156 million, a year-on-year increase of 47.9%. The significant growth in surgical fee revenue was driven by rapid revenue growth in mainland China. However, surgical fees in mainland China remain substantially lower than those in Hong Kong. The average surgical fee in Hong Kong was HK$34,200, while the average surgical fee in mainland China was HK$15,600.

As C-MER Medical’s revenue grew, its selling expenses also increased, with a year-on-year rise of 105.2% in the first half of this year. The announcement stated that the primary reason was the increased promotional expenses for its eye hospitals in Shenzhen, Beijing, and Kunming.

How was the trend of "mainland-bound" medical tourism in the first half of this year?

Unlike other ophthalmic institutions, C-MER Medical initially established its primary market in Hong Kong.Currently, it operates an ophthalmology center in Central, Hong Kong, along with five satellite ophthalmology clinics. However, upon its listing last year, C-MER Medical explicitly stated in its prospectus that mainland China would be its primary strategic market going forward. The net proceeds of HK$468 million raised from the IPO were designated for the development of a chain of ophthalmology hospitals in mainland China.

C-MER Medical’s optimism about the mainland Chinese market is driven not only by the promising scale of the private ophthalmic services sector in mainland China. In addition, the opening of its first wholly foreign-owned hospital, Shenzhen C-MER Shun Chiu Lam Eye Hospital, in 2013 has further bolstered its confidence.

Shenzhen C-MER Lin Shunchao Eye Hospital achieved break-even within one year of its opening. Since then, the hospital has gradually moved onto the right track, with outpatient visits increasing from 10,000 to 100,000 over four years. According to the announcement, the hospital's revenue during the reporting period was HK$103 million, representing a year-on-year increase of 34.1%.

In addition, to accelerate the expansion of its service network in the Guangdong-Hong Kong-Macao Greater Bay Area and other regions, C-MER Medical officially commenced operations of a hospital in Beijing and an ophthalmic satellite clinic in Shenzhen in January and November 2018, respectively. Meanwhile, the first C-MER eye hospital in Huizhou is scheduled to open in the fourth quarter of 2019 or the first quarter of 2020. This facility will feature ten consultation rooms and three operating theaters. Furthermore, in March this year, C-MER Medical acquired Kunming Eye Hospital to establish its service network in Southwest China.

Of particular note is Beijing C-MER Eye Hospital.C-MER Medical’s First-Half-Year Results “Stumble,” Stock Plunges 12.08% as Beijing Hospital Drives Up Operating Costs

According to the announcement, by the first half of this year, Beijing C-MER Eye Hospital had shown significant improvement in performance, with revenue reaching HK$25 million in the first half of the year, a year-on-year increase of 165.3%. However, the hospital is still operating at a loss, reporting a net loss of HK$3 million during the period (compared to HK$17 million last year). C-MER Eye Hospital remains optimistic about its performance in the second half of the year.

According to the announcement, during the reporting period, revenue from the Hong Kong market amounted to HK$135 million, representing a year-on-year increase of 33.1%; revenue from the Mainland China market reached HK$130 million, reflecting a year-on-year growth of 42.6%. In terms of revenue contribution, the share attributable to the Mainland China market increased by 1.7 percentage points compared to the same period last year.

With a larger patient hinterland in the mainland, C-MER Medical’s “northward expansion” is an inevitable choice.However, there is a significant gap between the medical ecosystems of mainland China and Hong Kong. Moreover, with Aier Eye Hospital already established as the leading private ophthalmic enterprise in the mainland, whether C-MER Medical can stand out remains to be seen over time.

Editor: Yu Jing

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