If Perfect Medical Health Management Ltd. (OTCPK:PFSMF, 1830.HK) were a modern Hong Kong woman, she might want to go to one of her medical beauty centers for surgery to make over her eyes, ears, mouth, and nose after more than three years of pandemic pain. She may also prefer to forget her ambiguous relationship with the Chinese mainland, where her centers have suffered even more than her core Hong Kong business due to relentless closures and regulatory hits.
All that and more are mirrored in Perfect Medical’s latest annual results for its fiscal year through March, which the company released in late June. Formerly known as Perfect Shape, Perfect Medical mainly operates professional medical beauty centers with a core strategy of “medical health + medical beauty.” The group was founded in 2003 and listed in Hong Kong in 2012. It enjoys a high profile in its hometown due to the frequent use of local entertainers and celebrity endorsers.
Perfect Medical’s base is Hong Kong, though it has more than 57 branches in Hong Kong, Macau, and Mainland China. Since changing its name, the company has operated under the Perfect Medical brand, targeting mid-to-high-end customers, including its more recent move into other markets beyond its original Hong Kong base.
The company’s net profit increased by 3.4% to HK$320 million ($41 million) in its latest fiscal year through March, equal to 25.3 cents Hong Kong cents per share, according to its latest report. The company proposed a final dividend of 12.3 Hong Kong cents per share, and a special dividend of 4.7 cents, totaling 17 cents per share. Those dividends, combined with its earlier interim dividend, mean the company distributed 30 Hong Kong cents per share as dividends this year, equaling a payout ratio of 118.6%.
Perfect Medical’s annual revenue increased by 2.9% in its latest fiscal year to HK$1.39 billion, while its operating profit ticked up slightly to nearly HK$400 million. The company performed poorly at the height of Hong Kong’s pandemic in the first half of last year, before improving in the second half with the relaxation of restrictions that allowed shops to reopen. Revenue from its Hong Kong operations rose 6.7% to $1.04 billion, accounting for about three-quarters of the total.
The medical beauty business continued to be the company’s mainstay, supplying 77.4% of its revenue, based on the value of its sales contracts. Average consumption per customer remained at a relatively high level, including HK$28,026 for aesthetic medical customers and HK$23,451 for medical business customers. Aesthetic medical revenue rose 7% year-on-year, while medical business revenue fell nearly 20%.
Big potential in “light beauty”
Perfect Medical’s shares hit their highest level in more than a month after the results were announced, closing up more than 4% for the day. Despite the weak annual revenue growth, improving trends during the year saw the company’s revenue hit HK$720 million in the second half of its fiscal year, up more than 8% from the first half. Profits showed a similar trend, rising 10% sequentially to hit HK$165 million in the second half.
That seems to show the company was able to effectively control costs during the difficult period, and that the Mainland China and Hong Kong markets began to return to more normal conditions at the end of last year. The medical aesthetics business was particularly vulnerable during the pandemic due to its near-complete reliance on offline business, unlike broader medical services, some of which could be moved online.
Perfect Medical divides its business into three main segments: aesthetic medical, medical, and beauty and wellness. Its business is focused on aesthetic medical, with more than 75% of its revenue coming from that segment. From the customer perspective, many of its customers are more inclined to choose “light” non-surgical procedures that are the main focus of Perfect Medical’s aesthetic services, providing strong potential for future growth.
In its medical business, the company offers services like treatments for hair restoration and pain, as well as routine physicals, aiming to complement its core medical beauty services and thus provide a potential new source of revenue growth.
Perfect Medical is also notable for its prepaid model, whereby it sells packages to customers at discounts for its slimming and beauty services. That gives it strong cash flow and makes it easier to scale up or rein in its business depending on market conditions. Such prepaid packages generate hundreds of millions of Hong Kong dollars in sales each year, keeping the company flush with cash to save or use as it needs.
Living and dying in Hong Kong
Compared with other listed peers, Perfect Medical’s business is clearly focused on its home base in Hong Kong, though it is studying a big post-pandemic expansion. It plans to add 10 of its “medical + beauty” service centers in Hong Kong during its current fiscal year, bringing its total to 32 – up 45%. Still, some have pointed out that the company’s strong focus on its home market lacks imagination when such big potential lies across the border in Mainland China.
The company’s non-Hong Kong revenue is still relatively small. That figure fell 6.9% last year to HK$349.2 million, mainly due to weak performance in Mainland China. In its 2023 fiscal year, Perfect Medical opened only three Mainland stores in the mega-cities of Guangzhou, Shanghai, and Beijing. It plans to enter other global markets, including Melbourne and Sydney in Australia, as well as New York and London. The company is also studying Singapore, which has similar consumption patterns to Hong Kong, aiming to replicate its success in Lion City.
While Perfect Medical’s latest report card is hardly beautiful, its peers look even more appalling. Beauty Farm (2373.HK), sometimes called the “Hermes of the beauty industry,” had to temporarily close its directly-operated stores in many major Chinese cities during the pandemic early last year, resulting in a sharp 40% decline in its net profit. So-Young (SY), another medical beauty services app, also suffered as Beijing clamped down on the local medical beauty market by banning advertising and other marketing by illegal businesses.
Perfect Medical’s price-earnings (P/E) ratio currently stands at about 16 times, well below the 34 for Beauty Farm, which is also listed in Hong Kong. That may be partly because Perfect Medical’s scope is relatively smaller and geographically limited. But its strategy of using Hong Kong as its base, while exploring selected overseas markets, has become its saving grace, helping it steer clear of more unpredictable regulators on the Chinese Mainland.
Disclosure: None
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