Huachuang Securities has issued a research report maintaining its "Outperform" recommendation for Hygeia Healthcare (06078), setting a price target of HK$14.69 based on a 15x price-to-earnings multiple applied to the company's projected 2026 adjusted net profit under Non-IFRS standards. For the first half of 2026, the company generated revenue of RMB 1.96 billion, a decline of 1.4% year-on-year, while net profit reached RMB 260 million, up 4.7%. Gross margin improved by 0.8 percentage points to 27.4%, and net margin rose by 0.7 percentage points to 13.1%. Operating cash flow came in at RMB 460 million, reflecting a 0.7% increase from the prior-year period. The brokerage believes the company's financial performance is gradually recovering, accompanied by improving free cash flow.

Revenue decline narrowing with optimized service mix

During the January-to-June period of 2026, revenue contracted by just 1.4% year-on-year, a notable slowdown compared with previous declines. Patient visits totaled 2.3 million, up 4.1%, including 1.8 million outpatient visits, which grew 4.5%. Surgical procedures reached 46,000 cases, an 8.2% increase, with higher-complexity level III and IV procedures surging 17.8% to 21,000 cases, indicating a continued shift toward high-technology medical services. The company's critical care capabilities have strengthened, with Suzhou Yongding Hospital achieving national chest pain center accreditation, while hospitals in Chang'an and Hezhou Guangji rank at the forefront regionally for DRG core metrics. International medical services are expanding in both scope and scale, with the international ward at Chongqing Hygeia Hospital now covering three floors and serving patients from an increasingly diverse geographic footprint spanning Southeast Asia, Central Asia, Europe, and the Americas. Self-pay business lines, including medical aesthetics, medical weight management, and health management, are being actively developed, with more than 70 insurance companies signed as designated reimbursement partners. Artificial intelligence integration continues to deepen across AI-assisted precision radiotherapy, imaging diagnostics, and collaborative research with Tianjin University Medical School on brain-computer interface clinical applications. The brokerage contends that as technology-driven services gain a larger revenue share and existing bed utilization gradually improves, the company's top line is well-positioned to sustain its recovery trajectory.

Profitability on the mend with refined management yielding results

For the reporting period, gross margin and net margin expanded by 0.8 and 0.7 percentage points year-on-year to 27.4% and 13.1%, respectively. EBITDA reached RMB 460 million, up 0.1%, both metrics improving from the prior-year period and signaling a turning point in profitability. The company employed 929 full-time senior-title medical professionals by the end of the period, an increase of 22 personnel compared with the end of 2025. The number of key clinical specialties and centers reached 38, with one new national-level chest pain center and four new municipal-level key clinical specialty projects added during the period. This reinforces the company's strategic focus on strengthening academic disciplines and talent development. Combined with AI-enabled enhancements across supply chain management, financial operations, and customer service systems, there remains meaningful headroom for further cost control and profitability improvement.

Free cash flow improves with stronger capital structure

Net operating cash flow reached RMB 460 million in the first half of 2026, growing 0.7% year-on-year, while the net cash conversion ratio remained elevated at 178.2%. Free cash flow climbed 38.5% to RMB 300 million, underscoring significantly enhanced operational quality. Trade receivables fell 20.1% from the beginning of the year to RMB 549 million, and the interest-bearing debt-to-asset ratio dropped to 21.3%, down 4.1 percentage points from the end of 2024. Capital expenditures declined 32.9% year-on-year to RMB 162 million, reflecting a more focused allocation of resources toward enhancing efficiency at existing hospitals. In June 2026, the company announced plans to deploy approximately RMB 500 million annually over the next three fiscal years for share repurchases and/or dividends. This complements the orderly execution of the RMB 200 million repurchase program initiated in 2024 and the planned minimum RMB 300 million buyback for 2025, continuously strengthening shareholder return mechanisms. The founder increased his stake by 3.548 million shares in May 2026, lifting his ownership to 46.85%, which closely aligns his interests with those of minority shareholders and provides solid support for long-term value creation. Key risks highlighted include potential adjustments to medical service pricing and slower-than-expected business expansion.