Incident: The company announced FY2023 results. In FY2023, it achieved operating income of 1,474 billion yuan, down 9.2% from the previous year, and realized net profit of -220 million yuan from the previous year, a significant decline over the previous year. The adjusted operating profit for FY2023 was 3.83 million yuan, and the adjusted net loss was 29.23 million yuan.

The gross margin has declined, and the cost rate has increased. The company's gross margin for FY2023 was 16.77%, down 3.96 pct year on year, sales expense ratio was 6.24%, up 1.35 pct year on year, management expense ratio was 23.05%, up 6.11 pct year on year, and financial expense ratio was 2.96%, up 0.11 pct year on year.

Continuing external expansion, the acquisition of Tongshan Dental contributed to the increase in revenue. In FY2023, the company continued to expand nationwide and acquired Tongshan Dental, a well-known dental medical group with 1 dental hospital and 8 dental clinics in Wuxi City and surrounding areas in Jiangsu Province. Tong Shan Dental had a total of 90 dental chairs as of fiscal year 2023, contributing RMB 47.7 million in revenue since the acquisition was completed on August 30, 2022.

New internal building+store upgrades, the number of dental chairs is growing rapidly. The company opened 4 dental clinics and 1 dental hospital in FY2023, and upgraded 4 clinics. In addition, two clinics (with a total of 31 dental chairs) and a hospital (with a total of 35 dental chairs) are under construction. The total number of dental chairs in the company as of fiscal year 2023 was 1,442, an increase of 18.8% over the previous year.

The collection policy is gradually being implemented, and demand for terminals is improving. Previously, due to the influence of dental implant collection policies, market wait-and-see sentiment was strong, and the sales side of dental institutions was under pressure. Currently, dental implant collection and dental crown online prices are gradually being implemented in most provinces and cities across the country. The burden of medical expenses on patients has been reduced by about half, and the penetration rate of dental implants is expected to increase rapidly. Furthermore, compounded by the weakening impact of the epidemic, the recovery in terminal demand is relatively optimistic, benefiting the dental chain group represented by the company.

Give it a “buy” rating. The company's FY2024-FY2026 EPS is expected to be 0.03/0.18/0.35 yuan. Considering the gradual recovery of industry demand and the gradual implementation of the collection policy, the company will be given a “buy” rating.

Risk warning: risk of medical malpractice; risk of industry policy; risk of increased competition