Aesthetic Medical International Holdings Group Ltd (AIH) 2020 Q3 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by, welcome to Aesthetic Medical International's third quarter 2020 unaudited financial results conference call. During today's presentation, all parties will be in a listen only mode. This conference has been recorded today, Monday, November 30th, 2020. (Operator Instructions)

Joining us today from aesthetic medical international are the company's Chairman and CEO, Dr. Pengwu Zhou; and the company's IRD. Mr. [Zong Wong]; and the company's financial officer, Mr. Guanhua Wu. 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 discussion of the 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 profit and adjusted EBITDA, you should not consider EBITDA, adjusted EBITDA and adjusted profit as a substitute for a superior to net income prepared in accordance with IFRS.

Furthermore, because non-IFRS measures are not determined 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 Mr. Pengwu Zhou, Chairman and CEO of aesthetic medical International. His opening remarks will be delivered in English by IRD., Mr. [Zong Wong]. Mr. Zhou, please go ahead.

(Spoken in Chinese language)

(interpreted) Thank you, operator, and everyone for joining Aesthetic Medical International's third quarter 2020 unaudited earnings conference call today. I will begin my remarks by providing an overview of the company's response to the COVID-19 outbreak during the third quarter 2020, followed by a summary of the company's third quarter 2020 performance. Then Dr. [Jonny Kwon] our IRD will review our financial results and operational performance in more detail, and she will elaborate a few other items related to our outlooks and the approaches we are taking to implement our initiatives in this fiscal year.

(Spoken in Chinese language)

(interpreted) Despite the fact that the COVID-19 is under effective control in China at this current stage, we are implementing a through COVID-19 prevention scheme and measures, including but not limited to regularly sterilizing and ventilating the company's facilities, taking strict protective measures to protect our frontline employees and customers. Segregating employees, lunch times, monitoring the body temperature of our employees and customers and keeping track of the travel history and health of our employees and their immediate family members.

(Spoken in Chinese language)

(interpreted) I am very pleased to announce that for this third quarter of 2020, we record a total number of active customers of 83,222, achieving an increase of 16.4% from 71,502 in the third quarter of 2019. This reflects our management capability and business resilience despite the full [financial] and the uncredibility brought by the COVID-19 pandemic.

At the same time, our core business initiatives were well executed and our market share in the aesthetic medical industry was strengthened primarily through our completion of the acquisition of Guangdong Pengai Hanfei Hospital Management Co Ltd and our integration of the industry chain.

(Spoken in Chinese language)

(interpreted) By the end of September 2020, all of our aesthetic treatment centers in China has resumed operations. In the third quarter of 2020, the company's business operation has resumed to the same or even surpassed the same period last year. The market has been signaling the recovery in our business and the aesthetic medical industry as China gradually recovers from the aftermath of COVID-19 outbreak.

Customers are adapting to the new normal and gradually restoring their contained enthusiasm in consuming aesthetic medical service. In addition to allocating our resources to focus on enhancing our customer stickiness and improving our brand awareness, long-term growth and returns with an emphasis on sustainability remains our priority.

(Spoken in Chinese language)

(interpreted) So turning back quickly to our third quarter 2020 unaudited result, you can see from our earnings release, our total number of active customers and financial performance in third quarter 2020 has recovered despite the fact that the aftermath of COVID-19 outbreak has not been completely eliminated.

Therefore, our revenue increased by 18.2% to RMB 281.3 million, approximately equals to USD 41.4 million in third quarter 2020 from RMB 237.9 million in third quarter 2019. And our gross profit increased by 9.4% to RMB 179.7 million, which is approximately equal to USD 26.5 million in the third quarter of 2020 from RMB 164.3 million in the same period of 2019.

(Spoken in Chinese language)

(interpreted) Thank you again for all your support and attention. Nick, I will turn the call over to Mr. [Sandip Agarwal], our IRD, who will review our operation results and financial results for the third quarter of 2020, and the nine months ended September 30, 2020, as well as our business outlook on behalf of the management team. Mr. Sun, please go ahead.

Thank you, Dr. Zhou, and good morning, everyone. Next on behalf of the management team, I will summarize some of the key unaudited financial results, and operational results for the third quarter 2020 and nine months ended September 30th, 2020. So first of all, third quarter 2020 unaudited financial result. In this quarter, our total revenue increased by 18.2% to RMB 281.3 million, which is about USD 41.4 million.

The increase in the total revenue was primarily due to the acquisition of Guangdong Pengai Hanfei Hospital Management Co Ltd, and the increased total number of active customers developed through the company's enhanced marketing and advertising efforts. The gross profits was RMB 179.7 million, which is USD 26.5 million, an increase of 9.4% from RMB 164.3 million the third quarter of 2019.

Primarily as a result of the increase in revenue due to the acquisition of the Guangdong Pengai Hanfei and the expand customer base. The gross profit margin was 63.9% a decrease of 5.2% points from 69.1% in the third quarter of 2019, mainly due to the more competitive pricing strategy adopted by the company and its subsidized, and it's subsidiaries in response to the outbreak of COVID-19.

The gross profit of nonsurgical aesthetic medical service was RMB 87.7 million, which is about USD12.9 million, a decrease of 19.4% from RMB 108.8 million in the third quarter of 2019. The gross profit margin was 63.4%, a decrease from 75.2% in the third quarter of 2019. The gross profit of minimal invasive aesthetic treatment was RMB 46.5 million, which is about USD 6.8 million, an increase of 36% from RMB 34.2 million in the third quarter of 2019.

Gross profit margin was 65.7%, an increase from 64.8% in the third quarter of 2019. The gross profit of energy-based treatment was RMB 41.1 million, which is about USD 6.1 million, a decrease of 44.9% from RMB 74.6 million in the third quarter of 2019. The gross profit margin was 60.8%, a decrease from 81.2% in the third quarter of 2019.

The gross profit margin of surgical aesthetic medical service was RMB 86.1 million, which is about USD 12.7 million, an increase of 65.9% from RMB 51.9 million in the third quarter of 2019. The gross profit margin was 66.8%, an increase from 64.2% in the third quarter of 2019. The gross profit of general health care service and other aesthetic medical service was RMB 5.9 million, which is about USD 0.9 million an increase of 59.5% of RMB 3.7 million in the third quarter of 2019. The gross profit margin was 41.8%, an increase from 29.8% in the third quarter of 2019.

The selling expenses was RMB 140 million, which is about USD 20.6 million, representing 49.8% of the company's total revenue of the same period comparing to selling expenses of RMB 103.5 million in the third quarter of 2019. Which represents 43.5% of the company's total revenue of the same period. Selling expenses increase on a year over year basis, primarily because of the companies enhancing its marketing efforts and advertising and marketing expenses to expand the brand's reach, boost sales and attracting new customers.

The general and administrative expenses were RMB 61.1 million, which is about USD 9 million, an increase of 14.4% from RMB 53.4 million in the third quarter of 2019, primarily due to the increase of share-based compensation expenses, which was first recognized in June 2019 and the acquisition of Guangdong Pengai Hanfei.

As a result of the foregoing, the company's record a loss for the third quarter of 2020, of RMB 17.7 million, which is about USD 2.6 million compared with a profit of RMB 118.8 million in the third quarter of 2019. Basic loss per share was RMB 0.26, which is about USD 0.04 compared with the basic earnings per share of RMB 2.77 in the third quarter of 2019. Diluted loss per share was RMB 0.26, which is about USD 0.04 compared with the diluted loss per share of RMB 0.12 in the third quarter of 2019.

The EBITDA for the third quarter of 2020 was RMB 6.9 million, which is about USD 1 million, a decrease of 95.4% from RMB 151.3 million in the third quarter of 2019. The adjusted profit for the third quarter of 2020 with RMB 6.9 million, which is about USD 1 million, a decrease of six point of 65.8% from RMB 20.2 million in the third quarter of 2019.

Adjusted EBITDA for the third quarter of 2020 was RMB 31.5 million, which is about on USD 4.6 million a decrease of 39.1% from the RMB 51.7 million in the third quarter of 2019. The nine months end September 30th, 2020 unaudited financial results for the nine months ended September 30th, our total revenue decreased by 14.6% to RMB 539 million or USD 79.4 million. The decrease in total revenue was primarily due to the temporary shutdown of the company's treatment center in February and March of 2020, and all those control measures implemented by the companies to limit the customer flow in the treatment centers due to the outbreak of COVID-19 during the first quarter and second quarter of 2020.

And the more competitive pricing strategy adopted by the company and its subsidiaries in response to the outbreak of COVID-19. Gross profit was RMB 309.8 million, which is about USD 45.6 million, a decrease of 28.1% from RMB 430.9 million in the same period of 2019, primarily as a result of the decrease in revenue in the first quarter and the second quarter of 2020, due to the COVID-19 outbreak. And the gross profit margin was 57.5% and decrease of 10.8% point from the 68.3% in the same period of 2019, primarily as a result of the decrease in revenue in the first quarter and the second quarter of 2020 due to the COVID-19 outbreak.

And the gross profit margin for the non-surgical aesthetic medical service was RMB 150.9 million and the gross profit margin of minimal invasive treatment was RMB 83.7 million. The gross profit of energy-based Triton was RMB 67.2 million. The gross profit of the surgical aesthetic medical service was RMB 145.4 million. The gross profit of the general health care service and other aesthetic medical service was RMB 13.5 million. The selling expenses was RMB 310.5 million, representing 57.6% of the company's total revenue of the same period, comparing to the selling expenses of RMB 267.8 million in the same period of 2019.

The general and administrative expenses was RMB 168.8 million, which is an increase of 41% from RMB 119.7 million in the same period of 2019 due to the increase of share-based compensation expense, which was first recognized since June 2019. As a result of the foregoing the company recorded a loss for the nine months ends in September 30th, 2020 of RMB 165.2 million which is about USD 24.3 million compared with a profit of RMB 198.9 million in the same period of 2019.

The basic loss per share was RMB 2.43, which is about USD 0.33 on the EBITDA for the nine months ended for the September 30th, 2020, was a loss of RMB 98 million, which is about USD 14.4 million, a decrease of 133.1% from a profit of RMB 295.7 million in the same period of 2019. The adjusted profit for the nine months was RMB 82.5 million which is about USD 12.1 million. The adjusted EBITDA for the nine months ended was a lot of RMB 15.2 million, which is about 2.2 million US, a decrease of 109.9% from a progress of RMB 153.3 million in the same period of 2019.

And now I am going to share with you about our operational results. The repeat customers, defined as active customers who have previously received at least one procedure from the company account for 56.8% of the company's active customer base in the third quarter of 2020. The company conducted a total of 187,847 treatments including about 49,551 surgical treatments and 132,393 non-surgical treatments in the third quarter of 2020, representing a increase of 14.6% and 27.8% and 14.3%, respectively, from the 163,943 total treatments and 38,764 surgical treatment and 115,799 nonsurgical treatment in the third quarter of 2019.

Repeat customers account for 58.6% of the customers -- active customers facing the nine months ended September 30th, 2020. And for the nine months the company constructed a total on 413,770 treatments, including 86,792 surgical treatment and 297,760 non-surgical treatments, representing an increase of 14.8%, 30% and 13.1% respectively, from 360,471 total treatments and 66,748 surgical treatment and 263,235 non-surgical treatment in the same period of 2019.

Now for a quick summary of our balance sheet and cash flow. As of September 30th, we had a cash and cash equivalents of RMB 66.2 million, which is about USD 9.8 million and RMB 154.5 million as of December 31st, 2019. The net cash used in operating activities was RMB 19.7 million, which is about USD 2.9 million for the nine months end, compared to the net cash generated from operating activities of RMB 99.6 million for the same period of 2019.

The net cash used in investing activity was RMB 106.9 million, which is about USD 15.7 million, and the net cash generated from financing activities was RMB 33.3 million, which is about USD 5.6 million for the nine months end for our other developments. On October 13th, this year, the company's announced as export of its board of directors has approved a share repurchase program under which the company's was authorized to repurchase in the open market up to USD 6 million worth of its ADS from time to time until October 12th, 2021, depending on general market condition and trading price and other factors as well as subject to the applicable laws and the company's security trading policy.

As of November 30th, 2020, 45,000 ADS was repurchased with a total consideration of approximately USD 0.3 million, and for our business outlook as China gradually recovers from the aftermath of the COVID-19 outbreak, the company has experienced recovery in it business operations. While the duration of the COVID-19 pandemic and its negative impact to market demand and the company's business operations still cannot be conclusively and accurately estimate at the time since there is still uncertainty for the possible COVID-19 outbreak in the future.

The company currently expects that its revenue for the fourth quarter of this year will be gradually recovered. Such expectation reflects the current and preliminary view of the company's management team based on the information available at this time and may be subject to change. The company will continue to monitor and evaluate the development of the pandemic and the result financial impact on the company.

The liquidity and capital resources. The company has net current liability of RMB 236.2 million as at September 30th this year from the second quarter of fiscal year 2020 to the third quarter of fiscal year 2020. And the company has completed three acquisitions, leading to a potential cash flow amounting to approximately RMB 54 million in the coming 12 months after the date of this release.

During the first quarter of 2020, due to the outbreak of COVID-19, the company shut down its aesthetic treatment centers. This creates medical and advice impact on its revenue and cash flow for the first half of 2020, with potential continuing impact on subsequent periods. After considering the gradual recovery of business post the COVID-19 outbreak.

It's expected cash flow from future operations, taking into considerations, cost cutting measures, funds from bank borrowings and other good source of financing. The company concluded that it has sufficient financial resources to meet its financial obligations and when they fall through in coming 12 months. At last, I would like to add some color regarding our company strategy in the year of 2020. We plan to stay focused on integrating the aesthetic medical industry change.

During the past few years, the aesthetic medical industry has been evolving from niche to mass market consumption with higher consumption demand and more standardizing and diversifying products and services and other high level of brand recognitions. So, I talk through this market trend. We strive to become an aesthetic medical company with a more competitive medical capability, the ability to provide full cycle service and more importantly, with well recognized brands and a larger business scale.

To that end, we need to quickly increase our business scale to improve our competitive strength, our market share and accordingly our profitability. Our strategy is crystal clear. It is to make good use of our funding capability to consolidate good targets with attractive valuation.

Now I would like to turn the discussion over to the operator, Andrew for any questions. Andrew?

We will now begin. Thank you. We will now begin the question-and-answer session. (Operator Instructions)

Michael Irwin of Univest securities. Please go ahead.

Hi, I am Michael Irwin of Univest securities. (inaudible) My first question is, China has been recovering quite well from the COVID-19 outbreak and things are appearing to be mostly back to normal. Have you seen business returning to normal or above normal levels currently?

Thank you, Michael. We have, as you can see, we have a pretty good increase in numbers. And for some numbers, we even made some new records for this year. So, we are expecting an even better report card for the next quarter. Yeah.

Okay, my next question is, are there any concerns about the two Shanghai locations with the sudden increase in cases Shanghai region?

Yeah, thank you for your question. Shanghai is a very big city with millions of people, the population of Shanghai, almost as large as the population of Australia. So, one or two single cases will not affect the entire picture and the local government is doing a great job of finding out those cases and treat them with the right treatments. So, we are very optimistic about what's going on in Shanghai.

Okay, there has been a global trend of more male getting these aesthetic treatments. Have you also been seeing this trend in your centers with more males actually coming into your clinic to receive treatment as well?

Thank you, that's a very good question. Currently, we have about 5% of the male patients. We are expecting more and more male customers in the long run, because the consuming behavior of the young Chinese is changing. So yes, we are expecting more in the future.

Alright, Thanks so much. Thank you.

Ivy Wang of Univest. Please go ahead.

Hi, this is Ivy from Univest. I have two questions. The first is, what will the collaboration with MEB Network bring to AIH? Is there any data showing how many customers are attracted by this app to AIH? Thank you.

I think at this point, as you may know, we are a very traditional and moderate company in the industry, which means currently we don't have too many genes in, well our lab. But we can let the professional do their part. So that's for me, it aligns with the MEB network. It's going to help us in a few parts. For example, branding, for example, we are getting more attention from the young customers. And of course, we are expecting a increase in sales.

Yeah. Okay. That's good to know, so.

I don't have the exact number, so maybe we can wait through the next quarter.

Yeah, Okay. Thank you.

So, my second question is, can I can know more about your future business development plans like, there are any further collaboration plans to build our brand awareness? Thank you.

Yeah, after the IPO last year. We are expanding very quickly in the country, and we are setting up a few satellite clinics, which is on like small clinics surrounding big cities. So, we are getting pretty good results from those. And also we are implementing our online to offline strategies. We are trying to cooperate with Tencent, maybe we are going to develop our own like app in the future so that we can reactivate our patients, our old customers. And of course, we can do a lot more on those apps, for example, like selling cosmetic products or other like consumption goods on that. So yeah, a [O-to-O] strategy.

Yes, Okay. Thank you, that's all my question.

Thank you, Ivy.

Steve Hopper of Cantor Fitzgerald, please go ahead.

Hi, good morning. I was just wondering;, how much cash did you use for the acquisitions that you completed in the third quarter?

Thank you. We already paid about 200 -- sorry RMB 220 million. Yeah, that's the cash that we already paid and we are going through or is it more in the future.

Are those structured as earn-outs? And can you quantify what they are now?

I don't have the exact number with me right now, but maybe you can shoot us an e-mail and we can send you the exact numbers that to say. Thank you.

Thank you.(Operator Instructions). I would like to turn the conference back over to [Mr. Song, Nick Wong] for any closing remarks.

Thank you, Andrew. On behalf of our entire management team, I would like to thank everyone again for joining us today for our conference call. If you have any questions, please contact us through e-mail at ir@pengai.com.cn or reach our IR portal consultant ascent At tina.xiao@ascent, ascent Investor Relations at Ciena, Shell at Essen hasn't IR.com. Men will respond to your question as soon as possible. We appreciate your interest and support in Aesthetic Medical International and look forward to speaking with you again next time. Andrew, please go ahead.

Thanks, everyone again for attending aesthetic medical International's third quarter 2020 unaudited Earnings conference call. This concludes our call today, and we thank you all for listening, and goodbye.