Fiscal year 2023 showed performance resilience in the context of the epidemic. In fiscal year 2023, revenue reached 1.474 billion yuan, down 9.2% from the same period last year, mainly due to the impact of COVID-19 on the normal provision of services by the company; the loss for the year was 223 million yuan, narrowing the loss compared with the same period last year; EBITDA became a regular employee, and the adjusted EBITDA reached 263 million yuan. The adjusted net profit still lost 29 million yuan, mainly due to the increase in the proportion of costs and expenses, which was related to the fixed expenses during the period when the outpatient clinic could not operate normally; the gross profit margin in fiscal year 2023 was 16.77%, down 3.96 pct from the same period last year; the expenditure rate of sales and distribution was 6.33%, which increased 1.42pct compared with the same period last year. The administrative expenditure rate was 23.39%, which was higher than that of the same period last year (of which the share payment fee was 194 million, and the management expense rate was 10.2% after exclusion). The R & D expenditure rate was 1.26%, a decrease of 0.77pct compared with the same period last year, mainly due to the reduction in the maintenance and follow-up development costs of independent R & D information technology.

Two-wheel drive of self-construction and M & A, and orderly expansion of commercial territory. As of March 31, 2023, the company operates a total of 123 stores, including 114 clinics (including 52 Raiel dental brands and 62 Ruitai dental brands) and 9 hospitals (Ruitai dental brand). The scale is steady expansion. In fiscal year 2023, the company built 1 new hospital and 4 clinics, added 89 chairs, and completed the expansion of 50 chairs and 4 clinics. By the end of fiscal year 2023, the company had two clinics (31 dental chairs) and one hospital (35 dental chairs) under construction. Two hospitals and five clinics are planned for fiscal 2024, and the number of dental chairs is expected to grow by 10%. In terms of mergers and acquisitions, in September 2022, the company acquired Wuxi Tongshan mouth and formally laid out the Wuxi market in East China. While expanding steadily, the number of stores in the company's steady growth period (that is, stores that have been in operation for more than 6 years) has reached 73, accounting for more than 59.3% of the total number of stores, and the number of profitable stores has increased to 93, with a steady pace of expansion and improved profitability.

Profit forecast and valuation: according to the operation of fiscal year 2023, we adjust the profit forecast. It is estimated that the company will achieve operating income of 19.04,23.77 and 2.949 billion yuan in fiscal year 2024-2026, an increase of 29.18%, 24.85% and 24.05% over the same period last year, and net profit of 0.43,1.21 and 159 million yuan. Adjusted net profit is 0.94,1.24 and 164 million. Considering that new hospitals and outpatient clinics drive down the company's short-term net profit, using PS valuation, the market capitalization is HK $4.4 billion on June 30, 2023, corresponding to 2.12,1.70,1.37 times PS for fiscal year 2024-2026, maintaining a "buy" rating.

Risk hints: medical disputes, brand damage, loss of doctors, lower-than-expected profitability, slower-than-expected expansion, intensified market competition, policy changes and other risks.