CICC issued a research report maintaining its "Outperform" rating and HK$3.90 target price for JXR (01951), citing the impact of medical insurance payment and medical consumables zero markup policies. The firm lowered its adjusted net profit forecasts for fiscal years 2025-26 by 59.9% and 7.5% to 170 million yuan and 417 million yuan respectively. The current stock price corresponds to 47.58x and 20.80x adjusted P/E for 2025-26. Considering the sector's valuation recovery, the target price represents 59.48x and 27.45x adjusted P/E for 2025-26, offering 25.0% upside from the current closing price.

**1H25 Performance Below Market Expectations**

JXR reported 1H25 results with revenue of 1.289 billion yuan, down 10.7% year-over-year, and adjusted net profit of 82 million yuan, down 67.0% year-over-year, missing market expectations. The underperformance was primarily attributed to medical insurance policy impacts on cycle numbers and average spending per customer, implementation of zero markup policies for pharmaceuticals and consumables, and profit volatility at HRC.

**1H25 Faces Short-term Policy Pressure, Recovery Expected in 2026**

Following the implementation of assisted reproductive technology coverage under medical insurance, the proportion of intrauterine insemination (IUI) cycles increased significantly in the company's overall cycle mix, creating short-term pressure on average customer spending and profit margins. The company expects patients to gradually return to IVF procedures as policies stabilize, combined with capacity expansion from relocating to a new building in Shenzhen, driving revenue and profit recovery.

Additionally, HRC in the United States posted losses in 1H25 due to continued demand release influenced by California commercial insurance policies and investments in new clinics. The company expects to restore profitability through business restructuring.

**Focus on Risk Release, Cash Recovery, and Enhanced Shareholder Returns**

JXR reported a net loss attributable to shareholders of 1.04 billion yuan in 1H25, primarily due to goodwill and intangible asset impairments of 950 million yuan at HRC (considering increased proportion of young doctors and margin pressure), intangible asset impairments of 46 million yuan in Laos (ceasing further investments in Laos), impairments of 100 million yuan on andrology business investments and other project prepayments, and one-time items at domestic hospitals.

The concentrated treatment of these special items is expected to help the listed company release balance sheet risks and achieve a lighter operational structure going forward. Combined with HRC business restructuring and overseas syndicated loan renewals, the company aims to recover funds and ensure liquidity. The company also plans to launch a medium to long-term share buyback program after optimizing leverage to strengthen shareholder returns.

**Policy Support Expected to Continue, Company Focuses on Key Business Areas**

**Enhanced Birth Encouragement**: The government implemented childcare subsidy policies in July, with additional birth-related policies expected to follow, potentially boosting birth intentions and benefiting the overall assisted reproductive industry growth.

**Egg Freezing Awaits Potential Policy Benefits**: Given the high risks associated with egg storage and transfer, egg freezing services offer stronger customer loyalty and longer service cycles, potentially becoming a new growth driver for the company. Related policy advocacy has appeared at the National People's Congress, raising expectations for future business expansion opportunities.

**Headquarters Upgrade and Yunnan-Hubei Facility Development**: The company expects to begin relocating its Shenzhen facility in 1Q26, potentially achieving 12,000-15,000 cycles capacity. Meanwhile, hospitals in Yunnan and Wuhan continue to strengthen their core assisted reproductive services, with profitability expected to improve continuously.

**Risk Factors**: Industry demand growth falling short of expectations; policy changes; unexpected medical events.