On January 30, HYGEIA HEALTH (06078) issued a profit warning. In the announcement, the company stated it expects 2025 revenue to be approximately RMB 4.0 to 4.05 billion, a decrease of about 9% to 10% year-on-year. Impacted by goodwill impairment, net profit for the period is expected to be approximately RMB 140 to 200 million, a decline of roughly 66% to 76% compared to the previous year. Despite this forecast of declining revenue and profit, investors in the secondary market did not panic-sell; instead, many entered the market to build positions. Observations show that on the day following the profit warning, HYGEIA HEALTH's share price stopped falling and rebounded, closing up 3.59% for the day with trading volume expanding to 6.8796 million shares, indicating a simultaneous rise in both price and volume.
This rebound triggered by a profit warning follows a downtrend that began after a significant drop on August 1 last year. HYGEIA HEALTH's share price continued to fall for nearly three and a half months until December 15 last year, when the company announced a RMB 300 million share repurchase plan, which halted the decline and spurred a rebound. From a technical perspective, this rebound lasted for over half a month. After HYGEIA HEALTH officially began executing the repurchase on December 17, its share price rose 3.78% the next day, continuing an upward trend. However, on December 19, the share price failed to break above the upper Bollinger Band and trading volume did not expand further, leading main funds to consolidate within the middle and upper Bollinger Bands for six trading days, further shaking out weak holders who had bought near the bottom.
By December 31, HYGEIA HEALTH's daily trading volume had decreased to 1.0226 million shares, reflecting increased concentration and consensus among holders. Consequently, on January 2 this year, the share price exhibited a typical post-consolidation "low-volume rise," closing up 2.17% with volume controlled at 503,000 shares, confirming that main funds had a high degree of control and setting the stage for subsequent consecutive price increases.
Clearly, share repurchases can only support a temporary rebound in the share price, not a long-term valuation reversal. On January 12, the fourth trading day after the price reached the upper Bollinger Band, HYGEIA HEALTH's share price began a technical correction towards the middle band. By January 30, the share price hit a low of HK$12.82, nearing the lower Bollinger Band at HK$12.69. On February 2, although the share price touched the lower band again during the session, a clear stabilizing and rebounding trend emerged, largely influenced by the profit warning issued after market hours on January 30.
As mentioned, while the annual profit warning indicated declines in both revenue and profit year-on-year, investors likely focused on two additional key points. First, the net profit decline was primarily due to goodwill impairment related to Etern Group Ltd. Second, operating cash flow grew by 33% to 41%. This suggests that despite the declines in revenue and profit, HYGEIA HEALTH maintained its characteristic strength of generating operating cash flow that surpasses accounting profit. Data shows that in the first half of 2025, the company's operating cash flow reached RMB 456 million, up 29.9% year-on-year and 27.9% sequentially, with a cash flow-to-net income ratio of 185.4%. For the full year 2025, the year-on-year growth in operating cash flow was even stronger than in H1, confirming the quality of its profits. For a company with a relatively low valuation, this serves as a confidence-boosting signal.
Considering the disclosed 2025 annual profit warning alongside the H1 2025 results provides further context. The H1 report highlighted key figures: revenue from inpatient services was RMB 1.22 billion (down 18.4% year-on-year, but up 2.1% sequentially), and revenue from outpatient services was RMB 722 million (down 11.2% year-on-year and 12.2% sequentially). Excluding seasonal fluctuations, outpatient service revenue remained largely stable compared to the previous year, while inpatient service revenue showed signs of stabilization and recovery after fluctuations in the latter half of the previous year. The H1 report also noted that patient visits reached 2.2 million, consistent with the previous year, indicating stable patient volume at HYGEIA HEALTH's hospitals. This is crucial as it demonstrates that patient demand remains unaffected; the primary impact of DRG payment reforms has been a reduction in revenue per unit at its hospitals. For a company focused on expanding its network in lower-tier cities, controlling costs, and integrating its supply chain, this is not a critical weakness.
Furthermore, the financial report emphasized optimized capital allocation. Regarding self-built hospitals, the company stated that the new Wuxi HYGEIA Hospital, the second phase of Kaiyuan Jiehua Hospital, and the new Qufu Hospital campus are scheduled to commence operations this year. By the end of this year, only the Changshu HYGEIA Hospital will remain under construction, with plans to open in 2026. This information corroborates the company's claim that it has passed the peak of its capital expenditure cycle, with current capital expenditure falling to RMB 242 million, a decrease of 28.5% year-on-year.
Returning to the annual profit warning, the company stressed that the significant year-on-year decrease in net profit was mainly due to a goodwill impairment provision for Etern Group Ltd. Although the reported net profit fell by approximately 66% to 76%, the adjusted net profit was approximately RMB 450 to 490 million, representing a smaller decline of only about 19% to 25%. The announcement attributed the decreases in revenue, net profit, and non-IFRS adjusted net profit to industry and macroeconomic factors, as well as increased pre-operating expenses and depreciation/amortization for newly opened hospitals. However, during the H1 2025 results briefing, management indicated that the company would prioritize acquisitions over building new hospitals in the short term. With the current pipeline of hospitals under construction scheduled to open during 2025-2026, and barring large-scale acquisitions, annual capital expenditure for the next two years is expected to remain below RMB 200 million, significantly lower than historical levels, suggesting manageable expectations.
From a policy and market perspective, ongoing centralized procurement and healthcare cost control measures in China are accelerating the exit of smaller, less profitable hospitals from the market. This supply-side consolidation benefits leading consolidators like HYGEIA HEALTH. This environment forms the basis for HYGEIA HEALTH's potential long-term fundamental stability.
Against this backdrop, HYGEIA HEALTH's current P/E ratio stands at only 16.67 times, below the industry average of 17.05 times. For a sector leader with strong risk resilience and stable fundamentals, this valuation appears notably low. Additionally, following the announcement of the RMB 300 million repurchase plan in December, the company has been consistently executing buybacks. To date, it has conducted 7 repurchases over the past year, buying back a total of 1.8836 million shares amounting to RMB 23.7234 million.