Concord Medical Services Holdings Ltd (CCM) 2011 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Second Quarter Concord Medical Services Holdings Ltd. Earnings Conference Call. My name is Stacey and I'll be your conference moderator for today. At this time all participants are in a listen-only mode. After the presentation there will be a Q&A session.

(Operator Instructions)

As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today to Mr. Tony Tian, Investor Relations Manager. Please proceed.

Thank you, Stacey, and thank you, everybody, for joining us today. We issued our earnings release earlier today. You can find a copy of the release on our IR website or through the Newswires.

Today you will hear from Dr. Jianyu Yang, Concord Medical's Director, President and Chief Executive Officer, and Mr. Steve Sun, Co-Chairman and Chief Financial Officer. After their prepared remarks, Dr. Yang and Mr. Sun will be available to answer questions.

Let me remind you that our comments today will include forward-looking statements made under the Safe Harbor provisions of the US Private Securities Litigation Reform Act of 1995 and within the meaning of Section 21-E of the Securities and Exchange Act of 1934 as amended. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations.

Potential risks and uncertainties include, but are not limited to those outlined in our filings with the SEC. The Company does not assume any obligation to update any forward-looking statements except as required by law. Our earnings release and remarks today also include unaudited non-GAAP financial measures. Please see our earnings release for a reconciliation of the unaudited non-GAAP measures to the most directly comparable unaudited GAAP measures.

You are reminded that such non-GAAP measures should not be viewed in isolation or as an alternative to the equivalent GAAP measure and that non-GAAP measures are not uniformly defined by all companies, including those in the medical industry.

As a reminder, this conference is being recorded. In addition, the webcast archive of this conference call will also be available on Concord Medical's website. And now I will turn the call over to Concord Medical's Director, President and CEO, Dr. Jianyu Yang. Dr. Yang, go ahead please.

(interpreted) Thank you, everybody, for joining us today. We delivered a good second quarter with solid financial growth in both revenues and net income. The growth was mainly due to higher patient volumes at existing centers, the contribution from centers added since last year, and the contribution from the Chang'An CMS International Cancer Center.

We established six new centers in the first half of this year, which were fewer than we expected, mainly due to delays in center construction by our hospital partners and in deliveries of gamma knife equipment by our suppliers. We remain committed to executing our long-term strategy to develop new radiotherapy and diagnostic imaging centers with hospital partners, increase utilization and efficiency at our existing centers, establish new specialty hospitals and standalone centers and also pursue prudent acquisitions.

We are pleased that our operations continued to perform well in the second quarter. Although it is likely that we will open fewer centers than the 25 to 30 centers that we had previously expected for the year 2011, our revenue outlook for the year remains unchanged, given our solid growth in the first half of 2011 and our anticipated volume growth and additional centers in the pipeline in the second half.

Next, Steve Sun will cover our financials. Steve?

Thank you, Dr. Yang. First I will cover three recent subjects, then the financials. In July our Board declared a special dividend of $0.18 per ADS which gives our shareholders a tangible recognition of Concord Medical's growth and financial performance since its initial public offering in 2009. The dividend is payable on September 30, 2011 to shareholders of record at the close of business on August 31, 2011.

Second, the acquisition of the Chang'An Hospital is still pending the completion of the due diligence and the required government approval.

And, third, we recently signed a memorandum of understanding, or MOU, with key health care to establish a preferred strategic partnership. With this partnership we will be able to purchase GE's specialized health care products at the best possible prices in Chang'An. We will also cooperate in academic and marketing programs and jointly organize seminars and conferences in China for scientific exchanges.

In addition, we will be able to partner with GE Healthcare in rural and primary care markets in China. We believe MOU will result in mutually beneficial relationship between Concord Medical and GE, a world recognized leader in the medical instrument industry.

Next, our financial highlights, net revenues were RMB124 million in 2Q '11, up 24.5% from 2Q '10, primarily due to an increase in patient cases from existing centers, the added new centers and the preliminary operating results from the Chang'An CMS International Cancer Center, or CCICC, which did not exist in the second quarter of last year.

Our gross profit margin was 67.6%, compared with 69.7% in 2Q '10. The lower gross margin was primarily due to the higher consumables and equipment maintenance charges in support of higher revenues.

Our operating expenses, including SG&A, were RMB29 million in 2Q '11, up 29% from 2Q '10, primarily due to the higher office and travel expenses and higher selling expenses in support of higher revenues.

Our operating income was RMB55.2 million in the second quarter of 2011, up 17.2% from 2Q '10.

Our non-GAAP operating income excluding share-based compensation was RMB57.4 million in 2Q '11, up 15.4% from 2Q '10.

Income tax expense was up 9% quarter-over-quarter, mainly due to the higher pretax income. The effective tax rate for 2Q 2011 was 27.2%, compared with 28.6% in 2Q '10. Net income in second quarter 2011 was RMB37 million (sic - see Press Release), up 60.1% from second quarter of 2010. Non-GAAP net income was RMB40 million in 2Q '11, up 13.7% from 2Q '10.

Basic and diluted earnings per ADS for 2Q '11 were RMB0.79 or $0.12, versus $0.10 from 2Q '10. Non-GAAP basic and diluted earnings per ADS were RMB0.84 in 2Q '11, versus, or $0.13, versus $0.10 from 2Q '10. And adjusted EBITDA, which is a non-GAAP measure, was RMB85 million for the second quarter 2011, up 11.8% from second quarter last year.

Next, our outlook for the year, based on the current market and operating conditions, estimated business expansion, and expected patient volume, we are reiterating our prior revenue outlook for the year 2011. We expect to generate net revenues in an estimated range of RMB480 million to RMB520 million for the year 2011, which will be an increase of about 23% to 33% from 2010. This estimated range excludes any potential future revenue arising from currently pending acquisition of equity interests in Chang'An Hospital, but includes revenues from CCICC's preliminary operations.

Of course, any unanticipated delays in completing the acquisition of Chang'An Hospital, any failure to obtain CCICC's clinical license, and other uncertainties may result in CCICC not achieving its expected revenue contribution to Concord Medical, which in turn could have a material adverse effect on our business, financial condition, and the results of operations in 2011 and future periods.

Because of the issues not under our control we are unable to provide an outlook for the number of new radiotherapy and diagnostic imaging centers that we expect to open in the second half of 2011, compared with the 25 to 30 centers for the year 2011 that we stated in our previous outlook. We believe that variations in the number of and the timing of centers to be opened in the second half of 2011 will not have a material effect on our revenue outlook for the year 2011.

Looking at our liquidity and cash resources, as of June 2011 we had RMB418 million in cash and our total in RMB in unused capacity in our bank credit line. So we have a good cash flexibility should we need it.

Next it's your turn. We will be happy to answer your questions. Operator, please poll for questions?

Thank you. (Operator Instructions). Your first question comes from the line of [Sam Zhang] with ROTH Capital Partners. Please proceed.

Hi. Good morning and good evening. I've got a couple of questions. My first question is that can you give us an update on the build out of the new oncology hospital in Guangzhou? And my second question is regarding you mentioned that the number of centers established were lower than expected partially because of the delivery of equipment. So my question is that what caused the delay in the delivery of the equipment, and for the second half of 2012 do you expect the delay to occur? Thanks.

Thank you. Currently we are still moving on with the Guangzhou oncology hospital project. And we're moving in the pace we expect, but so far we do not have any major progress reports released yet, but we, what I want to say is that we are still working to move forward.

And for the new centers, yes, a delay mainly come to through from two sides. One is the delay by the center construction, which is like about the flexibility of our [hard] partners. And they could [fein] us the contracting time, and we cannot put our equipment in time. That's -- we can only put in after they finish the in construction.

And, well, there are many reasons for this delay and we felt that this delay will continue somewhat this year, later, the second half of this year, and probably in the next year as well, but just pay a close eye on that to see how what is our progress, but right now we really cannot give you any more ideas about this what situation will change into that '12 or not.

Okay. Thank you.

And for the gamma knife that [permility] cost there is right now there is some transportation limitation on the proper source, and which definitely puts delays on all the gamma knife projects of any other projects that with natural a radiation source.

Okay. Thank you.

(Operator Instructions). And at this time I would now like to turn the call back over to Tony Tian for closing remarks.

Okay. We have come to the end of the conference call. The webcast replay will be available on our IR website. Please contact us if you have more questions. Until we meet again, we wish you good health, safety and happiness from Concord Medical in Beijing. Goodbye for now.

We thank you for your participation in today's conference. This does conclude your presentation. You may now disconnect and have a great day.

Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring the Event.