Huachuang Securities: Maintain "Recommended" rating for HYGEIA HEALTH (06078), target price HKD 14.69.

Hua Chuang Securities has released a research report maintaining a "Recommended" rating for HYGEIA HEALTH (06078), assigning the company a PE ratio of 15 times the adjusted net profit (Non-IFRS) for 2026, corresponding to a target price of HKD 14.69. In the first half of 2026, the company achieved revenue of RMB 1.96 billion, a decrease of 1.4% year-on-year; net profit of RMB 260 million, an increase of 4.7% year-on-year; a gross profit margin of 27.4%, up 0.8 percentage points year-on-year; a net profit margin of 13.1%, up 0.7 percentage points year-on-year; and operating cash flow of RMB 460 million, an increase of 0.7% year-on-year. The firm believes that the companys performance is gradually recovering and that free cash flow has shown some improvement. Key points from Hua Chuang Securities are as follows: Revenue decline narrows, business structure continues to optimize In the first half of 2026, the company realized revenue of RMB 1.96 billion, a year-on-year decline of 1.4%, significantly narrower than previously reported. The number of patient visits reached 2.3 million, a year-on-year increase of 4.1%; outpatient visits reached 1.8 million, an increase of 4.5% year-on-year; and the number of surgeries totaled 46,000, an increase of 8.2% year-on-year, among which the number of high-level surgeries reached 21,000, a year-on-year increase of 17.8%, indicating a continuous optimization of the business structure towards higher technology content. The ability to treat critical and severe emergency cases has steadily improved, with Suzhou Yongding Hospital certified as a national chest pain center, and hospitals like Chang'an and Hezhou Guangji ranking high in regional DRG core indicators; the international medical business has expanded and improved quality, with Chongqing Haijiya Hospitals international medical ward now covering three floors, and continuing expansion of services to hospitals and patients from Southeast Asia, Central Asia, Europe, and the United States; actively expanding self-funded services including medical aesthetics, medical weight loss, and health management, having signed contracts with over 70 insurance institutions to become designated hospitals for claims; ongoing deepening of AI empowerment, including AI-assisted precise radiotherapy, imaging diagnosis, and partnership with Tianjin University Medical College to explore clinical applications of brain-machine interfaces. The firm believes that with the increased proportion of technology-oriented business and gradual improvement in the utilization rate of existing beds, the company's revenue is expected to continue its recovery. Profitability rebounds, refined management shows results In the first half of 2026, the companys gross profit margin and net profit margin increased by 0.8 percentage points and 0.7 percentage points year-on-year, respectively, to 27.4% and 13.1%, with EBITDA at RMB 460 million, up 0.1% year-on-year, all of which improved compared to the same period last year, showing signs of a profitability turning point. During the reporting period, the company had 929 full-time senior professional medical personnel, an increase of 22 compared to the end of 2025; it established a total of 38 clinical key specialties/centers, including 1 national chest pain center and 4 municipal clinical key specialty projects. The strategy of "strong disciplines and gathering talent" continues to lay a solid foundation for talent and disciplines. Combined with AI empowerment in supply chain, financial management, and customer service systems, there is further room for improvement in cost control and profitability. Free cash flow improves, capital structure continues to optimize In the first half of 2026, the company's net cash flow from operating activities was RMB 460 million, an increase of 0.7% year-on-year, with a net cash ratio maintained at a high level of 178.2%. Free cash flow reached RMB 300 million, an increase of 38.5% year-on-year, significantly enhancing operational quality. Trade receivables decreased by 20.1% compared to the beginning of the year to RMB 549 million, and the interest-bearing debt ratio decreased to 21.3%, down 4.1 percentage points from the end of 2024; capital expenditures decreased by 32.9% year-on-year to RMB 162 million, with resources more focused on improving efficiency in existing hospitals. In June 2026, the company announced plans to use approximately RMB 500 million each year for share buybacks and/or dividends over the next three financial years, alongside the orderly advancement of a RMB 200 million buyback plan in 2024 and at least RMB 300 million in 2025, continuously strengthening the shareholder return mechanism. In May 2026, the founder increased holdings by 3.548 million shares, raising their shareholding ratio to 46.85%, deeply binding their interests with those of small and medium-sized shareholders and providing solid support for long-term value creation. Risk warning: Adjustments to medical service prices; business expansion falling short of expectations, etc.