New Horizon Health announced 1H23 results, with revenue of Rmb823m (+265%YoY), and adjusted net profit of Rmb61m (vs adjusted net losses of Rmb106m in 1H22), inline with its previous profit alert and our expectation. Its blended gross profit margin reached 87% (vs 82% in 1H22) in 1H23. Its selling expense ratio reached 70% in 1H23 (vs 87% in 1H22). The strong growth is mainly due to the sales ramp up of three commercialized products, including ColoClear, Pupu Tube, and UU tube. We maintain our EPS forecast of -Rmb0.06 in 23E, Rmb0.53 in 24E, and Rmb1.30 in 25E (+145% YoY). We maintain our target price of HK$56. With 219% upside, we maintain our BUY recommendation.

Strong sales ramp up with multi-cancer screening pipeline products. In 1H23, the revenue of ColoClear, Pupu Tube, and UU tube reached Rmb491m (+566% YoY), Rmb124m (+81% YoY) and Rmb206m (+147% YoY), respectively. As for the sales channel of ColoClear, hospital channel contributed the highest proportion of sales and is the fastest growing channel, compared with the direct-to-consumer channel and health checkup centers. The company accelerated the admission process in public hospitals 1H23, with ColoClear been admitted by c.300 public hospitals. In addition, the revenue-recognized volume of ColoClear, Pupu Tube, and UU tube grew 354% YoY, 40% YoY and 111% YoY in 1H23, reaching 428,700 units, 4,096,600 units, and 2,912,100 units. In addition, CerviClear for cervical cancer screening has obtained CE Mark and commercially launched in Hong Kong in 1H23. Besides, the company's pipeline also includes LiverClear for liver cancer screening, NPClear for nasopharyngeal cancer screening, and a pan-cancer early detection program (PANDA).

Margin improvement. The gross profit margin of ColoClear, Pupu Tube, and UU tube was 91% (vs 76% in 1H22), 87% (vs 80% in 1H22) and 94% (vs 90% in 1H22) in 1H23, respectively. The rising gross profit margin of ColoClear is mainly due to the lower cost per test thanks to economics of scale, higher revenue per test in hospital and health checkup centers; and change of channel mix. In addition, the rising gross profit margin of Pupu Tube, and UU tube is mainly attributable to the lower manufacturing cost per unit and higher revenue per test.

Maintain BUY. We maintain our EPS forecast of -Rmb0.06 in 23E, Rmb0.53 in 24E, and Rmb1.30 in 25E (+145% YoY). We maintain our target price of HK$56. With 219% upside, we maintain our BUY recommendation.

Risks. Rising competition in the cancer screening market; lower-than-expected penetration rate; delay of pipeline progress.