Concord Medical Services Holdings Ltd (CCM) 2015 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to Concord Medical's second-quarter 2015 earnings conference call. As a reminder, today's call is being recorded.

I would now like to hand the conference over to your speaker of today, Mr. Bill Zima from ICR. Thank you. Sir, please go ahead.

Thank you, operator. Hello, everyone, and welcome to Concord Medical's second-quarter 2015 earnings conference call. Concord Medical's earnings release was distributed earlier today, and you can find a copy on the Company's website as well as on respective newswire services.

Today you will hear from Dr. Jianyu Yang, Concord Medical's Chairman and Chief Executive Officer, and Mr. Adam Sun, Chief Investment Officer. After their prepared remarks, Dr. Yang and Mr. Sun will be available to answer your questions.

Before we continue, please note that the discussion today will contain forward-looking statements under the Safe Harbor provisions of the US Private Securities Litigation Reform Act of 1995, within the meaning of Section 21E of the Securities 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 public filings with the SEC. Concord Medical does not undertake any obligation to update any forward-looking statements except as required under applicable law.

Both our earnings release and the remarks made during this call include discussions of certain unaudited non-GAAP financial measures. Our earnings release contains a reconciliation of unaudited non-GAAP measures to the most directly comparable unaudited GAAP measures.

As a reminder, this conference call is being recorded. In addition, a webcast of this conference call will also be available on Concord Medical's website.

With that said I would now like to turn the call over to Concord Medical's Chairman and CEO, Dr. Yang. Please go ahead.

(interpreted) Thank you, Bill. Welcome, everyone, to Concord Medical's second-quarter 2015 earnings conference call. During the second quarter, we have achieved important strategic goals.

First, the network business continues to experience healthy growth, increasing 3.4% to RMB166.3 million compared to the prior-year period. We expect ongoing strong, stable operating cash flow generated from our network business.

An important part of our expansion strategy is to open secondary cancer hospitals around the country. The first such project, (inaudible) Cancer Hospital, is currently undergoing internal decoration, staff recruitment and training, and other preparing work. We are now making great efforts in implementing the strategy.

Second, we have successfully integrated the Fortis Surgical Hospital in Singapore into our operations. Fortis's financial results were consolidated in the second quarter.

From the financial results, you can see the hospital was still in a loss in the second quarter. The reason for operating loss is that we are in the transition stage; and currently we are in the process of changing the name of the hospital to Singapore Concord Cancer Hospital, which we expect to be completed before the end of the year.

We are also working with MD Anderson Cancer Center to renovate the hospital to conform with MDACC medical centers. If [passing] the internal screening of MDACC, the Singapore Concord Cancer Hospital will join the MDACC internal association program.

Third, we have acquired additional ownership in the MDACC Proton Therapy Center -- MDACC PTCH, for short -- in August. Concord Medical has become the controlling shareholder of the management company of MDACC PTCH.

We are very excited to strengthen our partnership with MD Anderson Proton Therapy Center. We will continue to directly assist PTCH and MD Anderson to apply its advanced technology and management experience in China and provide better medical service for Chinese patients.

Concord Medical plans to build and operate multiple proton centers in China. This transaction will help Concord Medical learn from the leading proton treatment center in the world and build an exchange platform for academic and clinical expertise with physicians in China, the United States, and abroad.

Additionally, in an effort to fully unleash the value in our business, the Company has decided to seek listing of a wholly-owned subsidiary, the Beijing Concord Hospital Management Company, Limited, on the National Equities Exchange and Quotations in China, also known as the New Third Board in China. The [income cost] management Company is focused on providing management services to the Company's existing networks and the secondary hospitals project in the future. As seeking listing on the New Third Board, we will be able to create more value for our current and future shareholders.

This concludes my comments. At this point I would like to turn the call over to our Chief Investment Officer, Mr. Adam Sun, to review our financial results.

Thank you, Dr. Yang. Welcome, everyone, to our call. First, I would like to review the highlights of our second-quarter 2015 financial results. Our total net revenue increased by 8.5% to RMB174.5 million or $28.2 million in the second quarter of 2015, from RMB160.8 million in the second quarter of 2014. The total revenue is composed of revenue of the network business of RMB166 million and from the acquired Fortis Surgical Hospital of RMB8.2 million.

Gross profit was RMB79.2 million or $12.8 million, compared to RMB93.6 million in the second quarter of 2014. Our net income attributable to ordinary shareholders increased by 4.4% to RMB36.5 million or $5.9 million, from RMB35 million for the second quarter of 2014, which includes the net loss of Fortis Surgical Hospital of RMB7.8 million or $1.3 million.

Our basic and diluted earnings per ADS were both RMB0.81 or $0.13 compared with RMB0.78 in the second quarter of 2014. Adjusted EBITDA, non-GAAP, was RMB66 million or $10.6 million, compared to RMB92.4 million in the second quarter of 2014.

Now let me talk about our financial results for the second-quarter 2015 by segment. Network business: in the network business, we closed three radiotherapy centers in the second quarter of 2015. As of June 30, 2015, we operated a network of 129 centers in 53 cities in China and had entered into agreements to establish two additional centers.

Total net revenue from the network business increased by 3.4% to RMB166.3 million or $26.8 million, from RMB160.8 million in the second quarter last year. Cost of revenue for the network business was RMB81.8 million or $13.1 million, compared to RMB67.2 million in the second quarter last year.

We are pleased to see significant growth in the revenue contribution by both PET-CT and Cyber Knife centers. The percentage of the total revenue has also increased year-over-year, as our product mix improvement strategy paid off.

During the quarter, our PET-CT revenue increased 31% year-over-year, and our Cyber Knife revenue increased 72% year-over-year. The two sectors accounted for about one-third of our total revenue in the second quarter.

Gross profit from the network business was RMB84.8 million or $13.7 million; and the gross profit margin of the network business for the quarter was 51% compared to 58.2% for the second quarter of 2014. The decrease in gross profit was mainly due to higher cost of revenue attributable to the increased medical consumable expenses for the network. We expect the gross margin of the network business to be stable at the current level for the rest of the year.

In this quarter, our network developed in line with our expectations, achieving both top-line and bottom-line stable growth. We will make more efforts in the product mix and efficiency improvements to our existing centers and selectively transform the existing centers into freestanding, self-owned centers in the areas which we have existing resources and strong patient demand.

Hospital business. Fortis Surgical Hospital is a leading private-owned for-profit hospital in Singapore which operates 31 beds and has 80 medical and nonmedical staff. As an important part of our overall strategy, we acquired this hospital in March this year. Currently, the Company is transforming it into a cancer specialty hospital.

Net revenue from the hospital business were RMB8.2 million or $1.3 million for the quarter, of which inpatient revenue accounted for 88% of the total revenue and the rest includes outpatient revenue of 5% and medical revenue of 7%. Cost of service for the hospital business was RMB13.8 million or $2.2 million.

Gross profit margin of the hospital business was negative due to the fact that we are in the process to transform the hospital into a specialty cancer hospital. Once completed, the hospital will provide MD Anderson standard oncology treatment to cancer patients, especially high-end cancer patients from Mainland China.

The profitability of the hospital will see tremendous improvement. We expect the transformation will be completed by the fourth quarter of this year.

In addition, after closing the acquisition of additional ownership interest of the University of Texas MD Anderson Cancer Center Proton Therapy Center in August, Concord Medical is now the controlling shareholder of the management company of the Proton Center and will consolidate its financial results beginning in the third quarter of this year. We expect to see incremental revenue contribution from the business.

That concludes our prepared remarks. Thank you for your attention. Now we would like to open it up to questions.

(Operator Instructions) We appear to have no further questions at this time. I would like to hand the call back to the management for closing.

Once again, thank you for joining us today. Please don't hesitate to contact us if you have further questions. Thank you for your continued support. Have a good day.

Thank you, ladies and gentlemen. That does conclude our conference call for today. Thank you for your participation. You may now disconnect your lines.

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 this Event.