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China's iKang Healthcare Sees Healthy Growth

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There's nothing like a prescription for healthy growth to rev up Wall Street's enthusiasm.

That's been the case for recent IPOiKang Healthcare Group ( KANG ), the largest provider in China's private preventative health care services market.

IKang's shares on Tuesday finished up 18 cents to close at 17.12 after posting better-than-expected revenue gains for the fourth quarter ending March 31 and fiscal 2013, even though it reported an earnings loss.

IKang lost 55 cents a share for its fiscal fourth quarter ended March 31, according to Thomson Reuters. But its revenue climbed 61% to $29.5 million, ahead of views by Thomson Reuters analysts for $23.37 million.

For the year, revenue was up 51.1% to $202.3 million, also ahead of forecasts. While it lost 41 cents a share for the year, its operating income surged 70.3% to $33.4 million. Its operating margin rose to 16.5% from 14.6% a year earlier.

Analyst Forecasts

Analysts expect the company to earn 50 cents a share in fiscal 2014. They see a 40% gain in 2015 and a 33% increase in 2016.

All the company's services saw healthy growth for the fourth quarter and the year.

The company expects its fiscal 2014 revenue to be between $283 million and $290 million, representing a year-over-year increase of 40% to 43.4%.

Overall, iKang's stock has risen 22% from its IPO on April 9.

What's the draw? "It's a corporate preventative health care provider that does medical examinations and screenings," said Cindi Profaca, managing director of IPOfinancial.com. "Anything that's health care-related is a buzz industry, especially in China, given their population dynamics. That would explain the strong demand for the deal at the open."

Through a network of medical centers in top affluent cities in China, iKang offers a wide range of medical examinations, disease screening and other services, such as consultancy. Its customers are mainly corporations, which contract with iKang to provide medical exam services to their employees and clients. They pay for these services at pre-negotiated prices. It also directly markets its services to individual customers.

IKang holds a 12.3% share of China's preventative health-care market at a time when the sector is growing fast and when an increasing number of large enterprises are staking their claim in large cities in China.

Investing In Health Care

"What makes this an interesting company is that the PRC, by policy, has been trying to upgrade the health-care industry in China by investment in hospitals and encouraging and investing in medical device companies," said Renaissance Capital analyst Linda Killian. "This company came up with an interesting service to provide preventative care with physical exams to individual employees of companies. In addition, they provide preventative care to individuals who want to sign up on a monthly basis."

IKang operates 45 medical centers covering 15 of the most affluent cities in China, such as Beijing, Shanghai, Guangzhou and Shenzhen.

It also contracts with roughly 300 third-party service facilities, which include independent medical examination centers and hospitals across all of China's provinces.

Paying For Employees

Killian estimates companies pay around $70 a year per person for iKang's services and individuals pay about $96.

The number of corporate customers grew to 17,200 in fiscal 2013 from 11,200 the prior year. Individual customers grew to 283,000 in 2013 from 206,000 in 2012.

"For the year to come, we aim to focus on network expansion through new centers and acquisition in existing tier one cities and new high-growth tier two cities, invest in advanced medical examination equipment in our self-owned medical centers to provide high-end medical examination for our customers, and continue to promote our iKang Evergreen brand, winning new contracts and expanding our customer base," said CEO Lee Ligang Zhang in a news release.

Management's growth strategy also includes expanding into complementary and adjacent areas, such as dental care.

The market for iKang's services is rife with opportunity. Chronic diseases are becoming more prevalent in China.

"With the rising incidence of chronic diseases, more and more people are realizing the importance and benefits of preventive health care services," says a company filing with the SEC.

Health Policies

Medical exams aren't typically covered by health insurance policies in China. Although most medical examinations are still performed in public hospitals, an increasing number of customers are choosing private providers who offer quality services at affordable prices, the filing says.

According to Frost & Sullivan, the total market grew from $500 million in 2009 to $1.5 billion in 2013, representing a compound annual growth rate of 32%, says the filing. It is expected to continue to grow from 2013 at a rate of 31% and reach $5.9 billion by the end of 2018.

The growth in the market to $1.5 billion in 2013 "makes sense given increased Chinese affluence, the increasing number of large enterprises operating in China and the increasing urbanization," said Killian.

Killian says it's "hard to know" if the company has any direct competitors.

"There's not a public one we're aware of," she adds.

Other companies might offer other types of services, she says.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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