Concord Medical Services Holdings Ltd (CCM) 2015 Q3 法說會逐字稿

Ladies and gentlemen, welcome to the Q3 2015 Concord Medical Services Holdings Limited conference call. (Operator Instructions). I must advise you that this conference is being recorded today, Thursday, November 19, 2015.

I would now like to hand the conference over to your first speaker today, Mr. Bill Zima. Please go ahead, sir.

Good day, everyone. Welcome to Concord Medical's third-quarter 2015 earnings conference call. With us today are Dr. Jianyu Yang, Chairman and Chief Executive Officer of Concord Medical; Mr. Adam Sun, Chief Investment Officer of the Company; [Miss Liu Shun], Financial Controller

The Company's results were released earlier today and are available on the Company's investor relations website at ir.concordmedical.com, as well as on the respective newswire services.

Before we continue, please note that the discussions today will contain forward-looking statements made under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements involve inherent risks and uncertainties and, as such, our results may materially differ from the views expressed today. Further information regarding those and other risks and uncertainties is included in our registration statement and on Form 10-K, and other documents filed at the SEC.

Concord Medical does not assume any obligation to update any forward-looking statements, except as required under applicable law.

That said, at this time, I'd like to turn the call over to Dr. Yang. Please go ahead.

(interpreted) Hello, everyone. Welcome to the Concord Medical third-quarter 2015 earnings conference call.

During the third quarter of 2015, we continued to make steady progress with our financial results, as indicated by the 7.7% year-over-year growth in net revenue.

Our net income decreased compared to the prior year period as a result of the expenses associated with our Concord Cancer Hospital that was acquired in April of 2015 as we are in the process of transforming its business and operations. We have received approval from Singapore Ministry of Health to provide cancer treatment and diagnosis services at this facility and we expect it will be able to generate profits for our business in 2016.

In an effort to fortify our leadership position in cancer treatment and diagnosis in China, we continued to execute our operational strategy effectively during the third quarter of 2015.

We are pleased with the steady progress in our network expansion and net revenue growth. After years of analysis and preparation, we have begun building high-end cancer specialty hospitals in Beijing, Shanghai, and Guangzhou.

In October, we received approval to change the name of our acquired Fortis Surgical Hospital in Singapore to the Concord Cancer Hospital, which will provide world-class [integrity] cancer treatment and diagnosis services with chemotherapy and cancer surgery as its main services. Currently, we are purchasing equipment and going through the interior decoration.

We will work closely with our strategic partner, MD Anderson Cancer Center, MDACC (inaudible), at our hospitals in Beijing, Shanghai, Guangzhou, and Singapore setting up specific departments; medical procedures; medical technologies; personnel training; and improving the overall patient experience at each new facility.

By pursuing our strategic goals, we aim to provide Chinese patients world-class cancer care and diagnosis.

According to the agreement that we signed earlier this year, MDACC will assist our hospitals with the development and implementation of clinical quality measures and guidelines, as well as assist with ensuring patient (inaudible) procedures to comply with MDACC alliance member quality standards.

Additionally, we have also made tremendous progress in developing and constructing Class 2 hospitals. Datong Meizhong Jiahe Cancer Center, our first freestanding radiotherapy cancer center in Datong City of Shanxi province, is preparing for its upcoming grand opening and recruitment. We expect this cancer center will start treating patients in only 2016.

Meanwhile, our business development division is making good progress with its efforts to support the project, expand the network of Class 2 hospitals, and gradually transform the established [cooperation] center to a freestanding Class 2 cancer hospital.

As of now, we have signed about 10 investment agreements. We will implement our plans, as scheduled.

The foundation of the network will complement our three high-end hospitals located in Beijing, Shanghai, and Guangzhou. Leveraging our resources and extensive experience in the industry, we will provide cancer diagnosis and radiotherapy services to domestic patients.

Looking forward, we will continue to execute our hospital development strategies; expand our network of cancer centers; fully leverage our strategic partnership with MDACC; and solidify our leadership in cancer specialty medical management.

During the second quarter 2015 earnings conference call, we announced that we were going to list our subsidiary, Meizhong Jiahe Hospital Management Company, on the New Third Board in China. We have formally submitted our application for listing through the New Third Board system, which is currently being evaluated. We have received the initial feedback, and we will continue to update our investors about the progress.

This concludes my comments. At this point, I'd like to turn the call over Mr. Adam Sun to review our financial performance.

Thank you, Dr. Yang. Welcome, everyone, to our call. First, I would like to review our third-quarter 2015 financial highlights.

Our total net revenue increased by 7.7% to RMB154.3 million, or $24.3 million, in the third quarter of 2015 [from] net revenue for the network business of RMB143.2 million in the third quarter of 2014. The total net revenue is composed of revenue from the network business of RMB148.5 million, or $23.4 million; and from the acquired Fortis Surgical Hospital, or Concord Cancer Hospital, of RMB5.8 million, or $0.9 million.

Gross profit was RMB61.9 million, or $9.7 million, compared to RMB74.1 million in the third quarter of 2014.

Our net income attributable to ordinary shareholders was RMB22.3 million, or $3.5 million, compared to RMB34.5 million in the third quarter of 2014, which includes the net loss of Fortis Surgical Hospital, or Concord Cancer Hospital, of RMB13.2 million (sic - press release, "RMB13.3 million"), or $2.1 million.

Our basic and dilutive earnings per ADS were both RMB0.50, or $0.08, compared with RMB0.77 in the third quarter of 2014.

Adjusted EBITDA, non-GAAP, was RMB48.8 million, or $7.7 million, compared to RMB88.2 million in the third quarter of 2014.

Now, let me talk about our financial results for the third quarter 2015 by segment. Network business. Total net revenue of the network business increased by 3.7% to RMB148.5 million, or $23.4 million, from RMB143.2 million in the third quarter of 2014.

We are pleased to see increase, which was the product of our improved product mix, especially increased contribution from Cyber Knife centers in our network. During the quarter, Cyber Knife centers total revenue accounted for 11.4% of our total revenue with a year-over-year growth rate of 32.7%.

In the network business, we closed two radiotherapy centers in the third quarter of 2015. As of September 30, 2015, we operated a network of 127 centers in 53 cities in China, and had entered in to agreement to establish one additional center.

Gross profit from the network business was RMB65 million, or $10.2 million. And the gross profit margin of the network business for the quarter was 43.8%, compared to 51.7% for the third quarter of 2014. The decrease in gross profit was mainly due to higher cost of revenue attributable to the increased high-value medical consumable expenses, and maintenance expenses for the network.

Going forward, we will make greater progress in our product mix and efficiency improvement to our existing centers, and selectively transform existing centers into freestanding, self-owned centers in the areas where we have both resources and high demand from patients.

In the next year, we expect to see contribution of at least one freestanding center, since our Datong center will start treating patients at the beginning of 2016.

Now, our hospital business. Our new Concord Cancer Hospital in Singapore is an important part of our overall strategy, going forward. We acquired this privately owned, 31-bed for-profit surgical hospital in April of this year and are currently transforming it into a specialty cancer hospital.

Net revenue from the hospital business was RMB5.8 million, or $0.9 million, for the third quarter of 2015, of which inpatient revenue accounted for nearly 89% of total revenue; and outpatient revenue and medicine revenue contributed 4% and 7%, respectively.

Gross profit margin of the hospital business was negative in the quarter, as we are transforming the facility in to a specialty cancer hospital. Once complete, the hospital will provide MD Anderson standard oncology treatment to cancer patients, including cancer patients from China and the rest of Asia. We expect we will complete the transformation by 2016.

Looking at other recent initiatives, in September, we announced that we span off our current telemedicine business and jointly set up Beijing Allcure Medical Information Technology Ltd., with strategic investors. We injected our assets and staff associated with the telemedicine business in to Allcure and have brought in a professional management team.

In August, we announced our intention to repurchase up to $20 million of our outstanding ADS, with cash in open-market transactions or by other means. In the third quarter, we repurchased 330,730 ADS for a total value of $1.7 million.

That concludes our prepared remarks today. Now, we would like to open up the call to all questions. Operator.

(Operator Instructions). Christina Yao, Morgan Stanley.

I may ask you some questions on behalf of my analyst, Isabella Zhao. My first question is how about the revenue contribution from Datong Meizhong Jiahe Cancer Hospital? I will translate the question, one by one.

So you want to ask all the questions and we can answer them one by one, or you want to go question by question?

I think question by question, because there are a lot of questions here.

(interpreted) We are now at the end of the construction period of Datong Meizhong Jiahe Hospital and we'll soon start -- we are now going through the recruitment for that hospital. So, we estimate that this hospital will begin -- will become operational in the first quarter of 2016. We will disclose the progress, the performance of this hospital next year, quarter by quarter.

We plan to install free equipment to this hospital. So if you would like to estimate the revenue, or something, you could do that based on the free equipment and the performance of our cooperating centers.

We're now talking to local healthcare authorities in Datong City and plan to apply to join in the social security coverage. Thank you.

Okay, thank you. And my second question is you mentioned that Concord Cancer Hospital has received the approval from Singapore Ministry of Health to operate under a new name and will provide oncology as its main service. Could you tell us any incremental revenue and net profit contribution from Concord Cancer Hospital?

(interpreted) First, we will have Mr. Adam Sun to explain the contribution of net revenue and net income from Singapore -- Concord Cancer Hospital; and then, I would like to explain our future plans for this hospital.

For the past quarter, the total revenue from the Concord Cancer Hospital in Singapore was RMB5.8 million, or $0.9 million. The reason for this relatively low revenue is because we are undergoing a transformation of the hospital from the surgical hospital as the main business to oncology. And currently, we're also undergoing equipment procurement, and also personnel training. And the total financial loss from that hospital for the quarter was RMB13.2 million.

(interpreted) Now, I'd like to explain to you the development plan for the Concord Cancer Hospital with its new name.

Firstly, I would like to again with the background why we choose to acquire this hospital in Singapore. You may all know that we are now planning to construct three high-end hospitals in Beijing, Shanghai, and Guangzhou.

Actually, it took us four years to finish the application, registration, and land-acquiring period; and then, next, it will take us three years to complete the construction period, which I think is the necessary timeframe needed in Mainland China to build a high-end cancer specialty hospital. And it's a very complex, complicated procedure.

But during this long timeframe, we have some patients who ask us whether they can -- when they can MD Anderson standard cancer treatment in China. Especially, they have a concern in medicine or chemotherapy, because in Mainland China the medicine is about five years later than the United States.

So, there's a huge gap between the level in the United States and in Mainland China. So, based on this situation, we will also refer some patients to the United States so that they can use the advanced medicine and advanced treatment methods.

But still, there are some patients who would like to stay in Asia, which is much closer to their home, so we searched in Asian area; and then, at last, we choose to acquire Fortis Surgical Hospital in Singapore. That is the background for the acquisition.

And for the second stage, I think it starts from March this year, and it will last to the end of this year. For this period, we are now doing all the preparational work, with the support of MD Anderson. We hope that when it's complete this hospital will be focused on chemotherapy, providing most advanced medicine for the patient.

Gladly, we have got the approval from Minister of Health of Singapore and got license to run this hospital as an oncology hospital to provide cancer treatment services for patients; and that is one of the only two of this kind of license in Singapore. So we are now purchasing equipment, recruiting staff and experts so that we can do all the preparation for operations.

We hope that, with the support of MDACC, we could done all of the clinical quality measures and get license so that we can comply with MDACC alliance member quality standards and become one of the members of MDACC alliance. This is what we are going to do in the future.

And we think, once it's become operational, we hope that we can treat 1,000 patients per year. Thank you.

(spoken in Mandarin) net profit revenue for Concord Center Hospital (spoken in Mandarin).

(spoken in Mandarin).

(spoken in Mandarin).

For the past quarter, you mean, for the center? Yes, so the net revenue for the past quarter for the Singapore cancer hospital was RMB5.8 million, or $0.9 million. And the reason for this relatively low revenue is because currently, as Dr. Yang said, we're undergoing our transformation stage. And we will become fully operating as a specialty cancer hospital at the beginning of next year.

Okay, thank you. And my third question is you mentioned that CMS Hospital Management Company will list it on New Third Board in China and you have submitted the listing application. So my question is why list in China, and how much money you are hoping to raise, and what the use for this proceeding? And are you planning to de-list in US and re-list in China?

(interpreted) First, I would like to say, currently, we have no such plan to de-list in the United States and to be listing in the Chinese market.

Secondly, we are now seeking listing on the New Third Board of China, but we have no plan to raise money currently. And this subsidiary is a 100% owned subsidiary of Concord Medical.

Number three: this is the first time that we get a close connection with the domestic capital market in China. We are trying to spend a small portion of the hospital management, center management business to seek listing on this market; and that's it.

And in the future there is -- we could see some -- this business has got high value. We will then consider what we are going to do next, based on that situation.

As you may have seen, the subsidiary we are seeking listing on New Third Board is called Meizhong Jiahe Hospital Management Company. This brand name, Meizhong Jiahe, is for our Class 2 cancer hospital in China. This brand is targeting the patients who are covered by social security. So, through the listing, we also hope that we can raise more brand awareness and become more influential among our patients. Thank you.

Thank you. My last question is could you give us the revenue and net profit guidance for next year? And how about the new hospital's progress?

(interpreted) As to the forecasts for new projects, new hospitals, we are now doing (inaudible) and will disclose it in the future properly.

And looking forward for the future growth, I think, besides the existing network, we will see new contribution from our Class 2 hospital, Meizhong Jiahe Hospital, in Mainland China; and also, new contribution from Concord Cancer Hospital in Singapore.

As mentioned, we hope that we could provide MD Anderson standard treatment for patients from Asia, especially from China, and we could provide them better medical experience in Singapore.

Thank you. Yes, I have no question. Thank you.

Thank you.

(Operator Instructions) There are no questions at this time. Please continue.

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.

Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.

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.