Annual revenue and net profit both declined, but HYGEIA HEALTH (06078), which issued a profit warning, may be poised for a rebound moment?

On January 30, HYGEIA HEALTH (06078) issued a profit warning. In the announcement, HYGEIA HEALTH stated that the company's expected revenue for 2025 is around 40.0-40.5 billion yuan, a year-on-year decrease of about 9% to 10%; and due to the impact of impairment on goodwill, the company's current net profit is expected to be around 1.4-2.0 billion yuan, a year-on-year decrease of about 66% to 76%. Facing this double decline in revenue and net profit performance forecast, secondary market investors not only did not panic sell, but instead entered the market for long positions. It was observed that on the day after the profit warning was issued, HYGEIA HEALTH's share price stopped falling and rebounded, closing up 3.59% for the day, with trading volume increasing to 6.8796 million shares, achieving a simultaneous increase in volume and price. A share price rebound driven by a profit warning Since pulling a large bearish candlestick on August 1 last year and starting a downward trend, HYGEIA HEALTH's share price had been falling for nearly 3 and a half months, until December 15 last year when the company announced a 3 billion yuan buyback plan to stop the decline and begin the rebound. From the market perspective, this round of share price rebound has lasted for more than half a month. On December 17, after HYGEIA HEALTH officially announced the implementation of the buyback, the company's share price pulled out a large bullish candlestick the next day, closing up 3.78%, and continued to push the share price higher. However, on December 19, HYGEIA's share price did not break through the upper BOLL line and the trading volume did not continue to increase, so the main funds in the market chose to engage in a 6-day small platform oscillation between the middle and upper BOLL lines to further wash out the previous bottom-fishing. On December 31, HYGEIA HEALTH's daily trading volume fell to 1.0226 million shares, reflecting a further increase in the concentration and consistency of funds in the market. Therefore, on January 2 this year, the company's share price showed a typical rebound after a consolidation with low volume: the share price closed up 2.17% while the trading volume for the day was kept at 503,000 shares, confirming the strong control by the main funds in the market, forming the basis for the continuous rise in HYGEIA HEALTH's share price in the following trading days. Clearly, the buyback can only support a rebound in the company's share price for a certain period of time rather than a long-term valuation reversal. On January 12, the fourth trading day since the start of the current trend above the upper BOLL line, HYGEIA HEALTH's share price began a technical retracement towards the middle BOLL line amid a slight decline. On January 30, the company's lowest price was 12.82 Hong Kong dollars, just about to touch the BOLL line's lower price of 12.69 Hong Kong dollars. On February 2, although the company's share price still touched the lower BOLL line during the day, the trend of stabilizing and rebounding was obvious. This is closely related to the profit warning issued after the market closed on January 30. As mentioned earlier, in this annual profit warning, both HYGEIA's revenue and profit are expected to decrease year-on-year, but aside from these two data points, there are two other pieces of information that investors may be focusing on. One is that the decrease in net profit is mainly due to the impact of goodwill impairment by Etern Group Ltd., and the other is that operating cash flow increased by 33% to 41%. This indicates that behind the double decline in revenue and profit, HYGEIA HEALTH has maintained consistent operating cash flow performance that is better than its reported profit. From the data, in the first half of 2025, the company's operating cash flow reached 456 million yuan, a year-on-year increase of 29.9% and a quarter-on-quarter increase of 27.9%, with a net cash percentage as high as 185.4%. Furthermore, in the full year of 2025, HYGEIA's performance in terms of year-on-year growth in operating cash flow was better than in the first half of the year, confirming that its profitability remains robust. For a target with a relatively low valuation, this undoubtedly boosts market confidence. Faced with the choice between short-term pressure and long-term stability Taking into account the 2025 annual profit warning disclosed by the company, investors can look back at the HYGEIA HEALTH's performance in the first half of 2025, where the company revealed a key data point in its financial report - the revenue from inpatient services and outpatient services for the period were 1.22 billion yuan (a decrease of 18.4% year-on-year, an increase of 2.1% quarter-on-quarter) and 0.722 billion yuan (a decrease of 11.2% year-on-year, a decrease of 12.2% quarter-on-quarter) respectively. This indicates that, excluding seasonal fluctuations, the revenue from outpatient services remained stable compared to the previous year, while the revenue from inpatient services stabilized and rebounded after experiencing fluctuations in the second half of the previous year. In the 25H1 financial report, the company also mentioned that the number of patients during the reporting period reached 2.20 million, which was consistent with the previous year, showing that HYGEIA's hospital visit volume remained stable. This data is crucial because it reflects that the demand for hospital visits at HYGEIA has not been affected, and that the effect of the Diagnosis-Related Group (DRG) payment reform has only led to a decrease in unit revenue for the company's various hospitals. This is not a "fatal blow" for a company that focuses on expanding its network of lower-tier hospitals, controlling costs, and integrating its supply chain. In addition, in the financial report, HYGEIA also explicitly mentioned optimizing capital allocation. Regarding self-built hospitals, the company stated that the new hospitals - Wuxi HYGEIA Hospital, Kaiyuan Jiehua Hospital Phase II, and the new hospital area of Qufu Hospital, will be put into use this year. By the end of this year, the company has only one hospital under construction in Changshu, and plans to be put into use in 2026. This information indirectly confirms the company's statement that it has passed the peak of capital expenditure, as current capital expenditure has decreased to 242 million yuan, a year-on-year decrease of 28.5%. Taking into account the above data and returning to the annual profit warning disclosed this time, the company emphasized that the significant year-on-year decrease in net profit for the period was mainly due to the impact of goodwill impairment provision by Etern Group Ltd. Although the year-on-year decrease in net profit is about 66% to 76%, the adjusted net profit is about 4.5-4.9 billion yuan, a decrease of only about 19% to 25% year-on-year. The announcement states that the decrease in revenue, net profit, and adjusted net profit under non-international financial reporting standards is mainly due to the impact of industry and macroeconomic factors, as well as the increased expenses for new hospitals' opening fees and depreciation amortization. However, at the 25H1 interim results conference, the company's management had stated that they will not consider building new hospitals in the short term but will prioritize acquisitions. With the current ongoing openings of company-built hospitals in the 25-26 period, if large-scale acquisitions are not considered in the future, the company's capital expenditure in the next two years is expected to be less than 200 million yuan per year, significantly lower than historical levels, allowing for managed expectations. Considering policy and market conditions, as domestic centralized procurement and medical insurance cost control policies continue to deepen, a large number of small and medium-sized hospitals are forced to scale back due to profitability issues, leading to a significant acceleration in the consolidation of the hospital industry supply side. This changing market landscape is favorable to industry resource integration leaders like HYGEIA HEALTH. This is also the basis for HYGEIA HEALTH to achieve long-term fundamental stability. In this context, HYGEIA HEALTH's PE valuation is currently only 16.67 times, still lower than the industry average of 17.05 times PE valuation. As a company with strong risk resistance and strong fundamentals in the industry, this valuation performance is significantly undervalued. Additionally, following the announcement of a 3 billion yuan buyback in December last year, the company has been consistently conducting buybacks in a small but steady pace. As of now, the company has conducted 7 buyback transactions in the past year, repurchasing a total of 1.8836 million shares with a total amount of 237.234 million yuan.