CICC: Maintains JXR outperforming industry rating, target price HKD 3.90

According to the Zhitong Finance APP, China International Capital Corporation (CICC) released a research report stating that considering the impact of medical insurance payments and the zero markup policy for medical consumables, it has lowered the adjusted net profit forecast for Jinxin Fertility (01951) for 2025-2026 by 59.9% and 7.5% to 170 million yuan and 417 million yuan, respectively. The current stock price corresponds to an adjusted P/E of 47.58 and 20.80 times for 2025-2026. Considering the recovery of sector valuations, it maintains an "outperform industry" rating and a target price of HKD 3.90, corresponding to an adjusted P/E of 59.48 and 27.45 times for 2025-2026, indicating a 25.0% upside potential from the current closing price. CICC's main points are as follows: 1H25 performance below market expectations Jinxin Fertility announced its 1H25 performance: revenue of 1.289 billion yuan, a year-on-year decrease of 10.7%; adjusted net profit of 82 million yuan, a year-on-year decrease of 67.0%, which is below market expectations, mainly due to the impact of medical insurance policies on the number of cycles and average transaction price, the implementation of the zero markup policy for drug costs, and fluctuations in HRC profits. 1H25 under short-term pressure from policies, expecting recovery in 2026 In 1H25, with the implementation of the medical insurance policy for assisted reproduction, the proportion of artificial insemination (IUI) cycles in the company's overall cycles significantly increased, bringing short-term impacts on average transaction price and profit margin; the company expects that as the policy stabilizes, patients are likely to gradually return to IVF, coupled with the relocation to a new building in Shenzhen to release capacity, leading to revenue and profit recovery. In addition, the HRC in the U.S. experienced losses in 1H25 due to the impact of California commercial insurance policies and the introduction of new clinics, and the company expects to promote profit recovery through business restructuring. Focusing on risk release, enhancing capital recovery, and strengthening shareholder returns In 1H25, the company's net profit attributable to the parent company recorded a loss of 1.04 billion yuan, mainly due to goodwill and intangible asset impairment of 950 million yuan for the U.S. HRC (considering the increased proportion of young doctors and pressure on profit margins), intangible asset impairment of 46 million yuan in Laos (ceasing further investment in Laos), impairment of prepayments for investments in male health business and other projects of 100 million yuan, and one-off items from domestic hospitals. The bank believes that the concentrated handling of these special matters is expected to help the listed company release balance sheet risks and achieve a lighter operational burden in the future. At the same time, measures such as HRC business restructuring and the renewal of overseas syndicate loans will help achieve capital recovery and ensure liquidity. The company also plans to initiate a medium- to long-term share repurchase plan after optimizing leverage to enhance shareholder returns. Policies are expected to continue to strengthen, and the company focuses on key businesses for sustained efforts Strengthening fertility encouragement: In July this year, the national childcare subsidy policy was implemented, and subsequent fertility-related policies are expected to be strengthened, which the bank believes will help restore fertility willingness and simultaneously benefit the overall growth of the assisted reproduction industry. Potential policy benefits for egg freezing: Considering the high risks of egg storage and transfer, the egg freezing business has stronger customer stickiness and longer service cycles, which is expected to become a new growth pole for the company's business. Currently, there have been related policy calls at the National Two Sessions, anticipating potential business expansion space in the future. Headquarters upgrade and incubation of Yunnan and Hubei hospitals: The company expects to start relocating the Shenzhen hospital in 1Q26, with the future business volume expected to reach 12,000-15,000 cycles; at the same time, the Yunnan and Wuhan hospitals continue to strengthen the core business of assisted reproduction, with profitability expected to continue improving Risk Warning: Industry demand growth is below expectations; policy changes; sudden medical events