Aesthetic Medical International Holdings Group Ltd (AIH) 2021 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by, and welcome to Aesthetic Medical International second quarter and first half of 2021 earnings conference call. During today's presentation, all parties will be in a listen-only mode. As a reminder, today's conference call is being recorded.

On the call today from Aesthetic Medical International are Dr. Pengwu Zhou, Chairman and Chief Executive Officer; Mr. [Tobi Wu], Chief Financial Officer; Mr. [Joe Su], Senior Director of Investor Relations; and Mr. Derek [Xi], Assistant to Chairman. Dr. Zhou will review the business operations and the company's highlights followed by Mr. Joe Su, who will introduce the company's financial performance. Chairman, CFO and IR team will all be available to answer your questions during the Q&A session that follows.

Before we get started, I would like to remind you that some of the information discussed will include forward-looking statements regarding future events and our future financial performance. These include statements about our future expectations, financial projections and our plans and prospects. Actual results may differ materially from those set forth in such statements.

For a discussion of these risks and uncertainties, you should review the company's filings with the SEC, which includes today's press release. You should not rely on our forward-looking statements as predictions of future events. All forward-looking statements that we make on this call are based on assumptions and beliefs as of today, and we undertake no obligation to update them except as required by applicable law.

Our discussion today will include non-IFRS financial measures, including EBITDA, adjusted loss and adjusted EBITDA. You should not consider EBITDA, adjusted EBITDA, and adjusted loss as a substitute for or superior to net income prepared in accordance with IFRS. Furthermore, because non-IFRS measures are not prepared in accordance with IFRS, they are susceptible to varying calculations and may not be comparable to other similarly titled measures presented by other companies. You are encouraged to review the company's financial information in its entirety and not rely on a single financial measure.

At this time, I would like to turn the call over to Dr. Pengwu Zhou, Chairman and CEO of Aesthetic Medical International. His opening remarks will be delivered in English by his assistant, Mr. David [Xi]. Dr. Zhou, please go ahead.

(interpreted) Thank you, operator, and everyone for joining the call today. We are pleased to see an encouraging result in this quarter, in terms of operational and financial results, strategic restructuring plans and our development in the field of nonsurgical aesthetic medical services. As the impact of COVID-19 has been gradually receding in Mainland China, the public has resumed their daily activities as well as their consumption of aesthetic medical services.

Supported by the recovery of market demand, the number of our active customers in the first half of 2021 increased by 21.7% year over year, which drove the revenue growth of 68.6% year over year and a gross profit margin improvement of 8.4 percentage points in the first half of 2021. Adjusted EBITDA also rebounded from loss in the first half of 2020 to profit in the first half of 2021.

We highly value the importance of sustainable growth and have been contemplating a strategic restructuring plan. Specifically, we plan to cease the operations of, or divest certain hospitals and clinics that either are located in our non-core markets or did not meet our internal performance requirements before the end of this year.

By ceasing the operations or divesting these underperforming hospitals and clinics that hindered our financial performance, we can focus on realizing the full potential of retained assets. We assessed the value of these hospitals and clinics, which was recorded a non-operating and non-cash impairment loss in the second quarter of 2021.

We believe that this is an essential move to improve our operations and solidify [AIH] leading position in the market. In the long run, we expect the overall profitability of the retained hospitals and clinics will improve, thus ensuring a healthier financial performance.

In the first half of 2021, we opened a nonsurgical aesthetic medical clinic in Beijing. It has achieved outstanding performance with an average monthly revenue of over CNY1 million in this quarter and has realized satisfying net profit margin. We expect it will continue the growth momentum in the third quarter of 2021. Currently, three similar satellite clinics will commence operations around the end of this year.

Going forward, we are strategically [shifting] the focus from rapid national expansion to a more focused, stable and sustainable growth in terms of revenue and profitability. We will continue to focus on renovating our existing flagship hospitals and investing in synergistic clinics to promote organic growth. We also plan to focus on the core regional market -- for example, the Guangdong-Hong Kong-Macao Greater Bay Area and the Yangtze Delta area. And we look for opportunities to establish hospitals or clinics in the regional markets.

Although sporadic COVID-19 cases are detected from time to time in Mainland China, economic activities in regions where AIH operate have not been materially affected. Our hospitals and clinics are implementing necessary precautions, including temperature check for employees and disinfection of premises, to secure a hygienic environment for both staff and customers.

Riding on the vibrant development of the aesthetic medical market in the People's Republic of China, together with AIH extensive experience in the field, we believe that AIH will be able to increase its market penetration and seize market opportunities from the expanding market.

Thank you again for all your support and attention. And I would now like to turn the call to our Senior Director of Investor Relations, [Joe], to introduce the financials of -- for the second quarter and first half of 2021.

Joe, please go ahead.

Thank you, Dr. Zhou, and hello, everyone. I will summarize some of the key unaudited financial results and operation results for the second quarter ended June 30, 2021. In the second quarter of 2021, our total revenue increased by 34.4% to RMB224 million, primarily due to the recovery of economic activities and customers' demands and purchasing power in Mainland China, together with the company's efforts to boost sales.

Revenue from the nonsurgical aesthetic medical services was RMB117 million, representing an increase of 41.3% from RMB82.8 million in the second quarter of 2020. Revenue from minimally invasive aesthetic treatments was RMB56.6 million, representing an increase of 33.5% from RMB42.4 million in the second quarter of 2020. Revenue from energy-based treatments was RMB60.4 million, representing an increase of 49.5% from RMB40.4 million in the second quarter of 2020. Revenue from surgical aesthetic medical services was RMB91.2 million, representing an increase of 27.9% from RMB71.3 million in the second quarter of 2020.

Revenue from general healthcare services and other aesthetic medical services was RMB15.8 million, representing an increase of 25.4% from RMB12.6 million in the second quarter of 2020. Gross profit was RMB133.6 million, representing an increase of 40.3% from RMB95.2 million in the second quarter of 2020, primarily due to the significant growth in total revenue. Gross profit margin was 59.6%, representing an increase of 2.5 percentage points from 57.1% in the second quarter of 2020, mainly due to more higher-margin services and products sold during the second quarter of 2021.

Gross profit of nonsurgical aesthetic medical services was RMB68.6 million, representing an increase of 48.8% from RMB46.1 million in the second quarter of 2020. Gross profit margin was 58.6% compared with 55.8% in the second quarter of 2020. Gross profits of minimally invasive aesthetic treatments was RMB32.6 million, representing an increase of 26.8% from RMB25.7 million in the second quarter of 2020. Gross profit margin was 57.6% compared with 60.6% in the second quarter of 2020. Gross profit of energy-based treatments was RMB36 million, representing an increase of 76.5% from RMB20.4 million in the second quarter of 2020. Gross profit margin was 59.6% compared with 50.7% in the second quarter of 2020.

Gross profit of surgical aesthetic medical services was RMB55.4 million, representing an increase of 33.8% from RMB41.4 million in the second quarter of 2020. Gross profit margin was 60.7% compared with 58.1% in the second quarter of 2020. Gross profit of the general healthcare (technical difficulty) significantly from RMB7.7 million in the second quarter of 2020 to RMB9.6 million in the second quarter of 2021. Gross profit margin was [60.8]% compared with 61.3% in the second quarter of 2020.

Selling expenses were RMB112.3 million, representing 50.1% of the company's total revenue of the same period, compared to selling expense of RMB92.5 million in the second quarter of 2020, which represented 55.5% of the company's total revenue of the same period. Selling expenses increased on a year-over-year basis, primarily due to the company launched more marketing initiatives after it gradually resumed operations in the second quarter of 2021.

General and admin expenses were RMB44.8 million, representing a decrease of 21.3% from RMB56.9 million in the second quarter of 2020, primarily due to the decrease of RMB11.4 million in ESOP related expenses.

Impairment of goodwill was RMB111.6 million compared with nil in the same period of 2020. Impairment of intangible assets was RMB43.7 million compared with nil in the same period of 2020. Impairment of property, plant and equipment was RMB139.8 million compared with nil in the same period of 2020. The company incurred these impairments during the second quarter of 2021, primarily due to its strategic restructuring.

The change of these three items were primarily because the company has performed impairment assessments at cash-generating unit level and noted several recoverable amounts were lower than their carrying amounts for certain cash-generating units. Relevant impairments are non-operating and non-cash items.

As a result of the foregoing, the company recorded a loss of RMB324.5 million for the second quarter of 2021 compared with a loss of RMB64.6 million in the second quarter of 2020. Basic loss per share was RMB3.58 compared with basic loss per share of RMB0.95 in the second quarter of 2020. Diluted loss per share was RMB3.58 compared with diluted loss per share of RMB0.95 in the second quarter of 2020.

EBITDA for the second quarter of 2021 was a loss of RMB294.9 million compared with a loss of RMB34.3 million in the second quarter of 2020. Adjusted loss for the second quarter of 2021 was RMB14.9 million compared with an adjusted loss of RMB31.1 million in the second quarter of 2020. Adjusted EBITDA for the second quarter of 2021 was a profit of RMB14.7 million compared with a loss of RMB1.0 million in the second quarter of 2020.

Now I'd like to move on to the first half of 2021 unaudited financial results. Total revenue was RMB434.5 million, representing an increase of 68.6% from RMB257.7 million in the same period of 2020, primarily due to the recovery of economic activities and the customers' demands in Mainland China, together with company's efforts to promote sales. Gross profit was RMB255.8 million, representing an increase of 96.6% from RMB130.1 million in the same period of 2020, primarily as a result of significant growth in the total revenue.

Gross profit margin was 58.9%, representing an increase of 8.4 percentage points from 50.5% in the same period of 2020, mainly due to more services and products with higher profit margins sold during this period.

Gross profit of nonsurgical aesthetic medical services was RMB129.4 million, representing an increase of 104.7% from RMB63.2 million in the same period of 2020. Gross profit margin was 57.3% compared with 48.5% in the same period of 2020.

Gross profit of minimally invasive aesthetic treatments was RMB60.2 million, representing an increase of 65.8% from RMB36.3 million in the same period of 2020. Gross profit margin was 55.5% compared with 53.4% in the same period of 2020.

Gross profit of energy-based treatments was RMB69.2 million, representing an increase of 159.2% from RMB26.7 million in the same period of 2020. Gross profit margin was 58.8% compared with 43.1% in the same period of 2020.

Gross profit of surgical aesthetic medical services was RMB108.5 million, representing an increase of 83.6% from RMB59.1 million in the same period of 2020. Gross profit margin was 60.9% compared with 53.2% in the same period of 2020.

Gross profit of general healthcare services and other aesthetic medical services grew significantly from RMB7.8 million in the same period of 2020 to RMB17.9 million in the same period of 2021. Gross profit margin was 58.9% compared with 48.4% in the same period of 2020.

Selling expenses were RMB206.3 million, representing 47.5% of the company's total revenue of the same period compared to selling expenses of RMB170.5 million the same period of 2020, which represents 66.2% of the company's total revenue of the same period. Selling expenses increased on a year-over-year basis, primarily due to the company has launched more marketing initiatives after it gradually resumed operation in the second quarter of 2021.

General and admin expenses were RMB86.9 million, representing a decrease of 18.4% from RMB107.8 million in the same period of 2020 primarily due to the decrease of RMB21.7 million in ESOP related expenses.

As a result of the foregoing, the company recorded a loss of RMB344.7 million for the six months ended June 30, 2021, compared with a loss of RMB147.5 million in the same period of 2020. Basic loss per share was RMB3.92 compared with basic loss per share of RMB2.17 in the same period of 2020. Diluted loss per share was RMB3.92 compared to diluted loss per share of RMB2.17 in the same period of 2020.

EBITDA for the six months ended June 30, 2021, was a loss of RMB286.7 million compared with a loss of RMB104.9 million in the same period of 2020. Adjusted loss for the six months ended June 30, 2021, was RMB22.8 million compared with adjusted loss of RMB89.6 million in the same period of 2020. Adjusted EBITDA for the six months ended June 30, 2021, was profit of RMB35.2 million compared with a loss of RMB46.7 million in the same period of 2020.

Operational results. In terms of operating performance, repeat customers -- defined as active customers who had previously received at least one procedure from the company -- accounted for 61.5% of the company's active customer base in the first half of 2021.

The total number of active customers was 125,261, representing an increase of 21.7% from 102,933 (sic - see press release, "102,937") in the same period of 2020. This is mainly because the impact of COVID-19 has gradually receded in the first half 2021.

Number of treatments. In the first half of 2021, the company performed a total of 270,424 treatments, including 45,238 surgical treatments and 225,186 nonsurgical treatments representing an increase of 33.5%, 21.5%, and 36.2%, respectively, from 202,608 total treatments, 33,241 (sic - see press release, "37,241") surgical treatments and 165,367 nonsurgical treatments in the first half of 2020.

As of June 30, 2021, cash and cash equivalents were RMB47.2 million compared to RMB44.4 million as of December 31, 2020. Looking ahead, we will continue to execute our strategies throughout the year. This is not only to provide better and quality services to our customers, but it provides sustainable growth to our shareholders.

This concludes our prepared remarks. Thank you for joining us on today's call, and we will now open the call to questions. Operator, please go ahead.

Thank you. (Operator Instructions)

[Meg Cole of Safari].

Hello. Thank you so much for the presentation. [Allowing] that the company has actually divest some sort of their assets during the period, and may I know what are the impacts of the divest to our net income and profit? And are we expecting further assets [diversion] in the near future, please? Thank you.

Okay. [I am the CFO of] the company, so thank you again for your question. Actually, the impact of the diversify -- you can see our income statement had [been say that, yes, it will be though] a huge number of them actually above remaining hospitals in our system is really profitable. And then we will also have a plan to improve and expanding our flagship hospital in the 2022. So that's why we have a very strong confident to turn our company to be a profitable company in the year 2020.

Okay. Thank you.

(Operator Instructions)

[Anne Xi, RiverCircle].

Yes. Hello. Thank you for the presentation tonight. I would like to ask -- because previously you have mentioned that we are going to open up more satellite hospitals or satellite clinics in various regions. And also, can you please share with us the upcoming opening plan? And also I'd like to know which areas will be your key focus in the future.

Thank you for question. The area for our key focus would be the Guangdong, Hong Kong and Macao Bay area as well as the Yangtze River area and other Tier-1 cities like Beijing in China. And for the expansion plan of [now we're search for medical clinics], we're currently discussing partnership options with multiple investors like (inaudible) companies.

So the final structure design will be subject to who we [partner] with. And but the overall strategy is the same. That is during the next year, we plan to complete about 10 clinics in the regions that we just mentioned. And for the next three to five years, we plan to open about 30 to 50 clinics. Thanks.

Thank you very much. Can I ask another question as well?

Sure.

I would like to know that with the current economies and/or so with the current policy, especially the common prosperity, is there any impact on our business or on the demand for aesthetic services in overall?

Overall, we don't see any material impact from that. Thanks.

Okay. Thank you very much.

(Operator Instructions)

Operator, we cannot hear you.

[Kim Kang, Shareco] Investments.

[Meg Cole, Safari].

Hi. Thanks, management, for sharing the -- I know that we are going to open further hospitals and clinics in other regions. And may I just clarify, are we expecting any further assets divest in the near future? And how are we going to ensure that our existing remaining hospitals and clinics are performing -- like hitting our performance guidance, please. Thanks.

We don't have any further plan during the near future for any further divesting or disposal. And could you please repeat your second question again?

Oh, yes, because this time for -- regarding the asset divest, it's because some of them are not performing. How -- do we have any measures to make sure that our remaining assets are going perform well?

Actually, based on the past experience, all the remaining hospital are [providing ground, even though in the] 2020 and 2021. So we have a very strong confidence that we can continue to maintain the performance of those remaining hospital are doing profitable and getting better. So we also believe we can put more ourselves and all our attention on those areas, for example, in the Guangdong [province], in the Shanghai area.

So we believe that after we're shutting down, those are not going well from a hospital, so we have a more attention and more sources on those [assessing of which] we can call the remaining hospital we own. And hence, those hospital being better than 2020. So this is what we are planning to do.

An additional thing -- we also plan to [putting] some improvement on the decoration, as well as on the marketing on those remaining as existing hospital as well. So we believe that those hospital will be doing good in 2022.

Okay. Thanks, management.

Thank you. Now I'd like to hand the conference back to Mr. Joe Su for closing remarks.

Thank you, operator. On behalf of our entire management team, I want to thank everyone again for joining with us today. If you have any further questions, please contact us through email at ir@pengai.com.cn or reach our IR counsel, DLK Advisory, at ir@dlkadvisory.com. We appreciate your interest and support in Aesthetic Medical International, and we look forward to speaking with you again next time. Thank you. Operator?

Thank everyone again for attending Aesthetic Medical International's second quarter and first half of 2021 earnings conference call. This concludes our call today and we thank you all for listening in. Goodbye.