Low-strategic collaboration business adjustments have basically been completed. Entering a new stage of high-quality development, Ping An Good Doctor 1H23 has a total revenue of 2.22 billion yuan, a year-on-year decrease of 21.5%; a net loss of 250 million yuan for non-IFRS, corresponding to a net interest rate of -11.2% for non-IFRS, an increase of 3.9 pp over the previous year. The decline in revenue was mainly due to business adjustments with low strategic coordination (which were basically completed at the end of the reporting period), and the year-on-year decline in losses was mainly due to an increase in the share of revenue from strategic businesses with high profitability. We adjusted the company's non-IFRS net profit forecast for 2023/2024/2025 to RMB -532/-2.02/77 billion yuan (previous value: net profit of RMB -5.68/-210/110 million yuan). We maintained a target price of HK$24.0, corresponding to 4.5/3.8/3.6 times the 2023/2024/2025 forecast PS (WACC: 8.1%, sustainable growth rate: 2.5%; unchanged).

Medical services: Focusing on resource development and strategic business, AI empowerment continues to advance 1H23. Ping An Good Doctor's medical service revenue fell 8.9% year on year to 1.03 billion yuan. Mainly because the company focused on resource development and strategic business, revenue from medical service types with low strategic coordination declined. Medical service gross profit increased 5.5% year on year to 4.4 billion yuan, corresponding to a gross margin of 42.9%, an increase of 5.9 pp over the previous year, mainly due to the increase in the share of business revenue due to high profitability. 1H23 further empowers family doctors with AI technology. On the one hand, it supports efficient basic information collection and analysis to form accurate user portraits. On the other hand, it accurately pushes personalized information and services to authorized users based on user portraits, improving the work efficiency and user experience of family doctors to a certain extent.

Health services: Adjusting low-synergistic businesses, reducing physical sales scale with low gross profit by 1H23, Ping An Good Doctor's health service revenue fell 29.9% year on year to 1.19 billion yuan, mainly due to the company's adjustment of health service sector businesses with low coordination with managed medical strategies and low profitability, such as some physical sales businesses. The gross profit margin of health services fell 17.9% year on year to 270 million yuan, corresponding to a gross margin of 22.9%, an increase of 3.3 pp from the previous year, mainly due to the decline in the share of physical sales revenue due to low gross profit. In terms of medical service networks, the company has further integrated online and offline medical service resources, focusing on the construction of a “three-way network”. As of 1H23, the company has cooperated with 4,000 hospitals (1H23:3,000) and 226,000 cooperative pharmacies (1H23:208,000).

The expansion of high-value users is progressing steadily, and the number of F-side and B-side paying users is growing steadily. The company has made steady progress in expanding users with high strategic value. The total revenue of 1H23's F-side strategic business was 1.08 billion yuan, an increase of 12.6%. The number of paid users served in the past 12 months exceeded 38 million, an increase of 13.3% over the previous year. Among Ping An Group's 229 million personal finance users, the penetration rate reached about 16.6%, and the penetration rate increased steadily. The B-side strategic business recorded revenue of 449 million yuan, an increase of 88.9%, and the total number of service enterprises reached 1,198 (749 in the same period last year). The company's stock enterprise customer renewal rate has reached 90%, the enterprise customer penetration rate into the Ping An Group medical ecosystem is 2.2%, and the penetration rate of enterprise customers and employees in the ecosystem is 15.6%. In our opinion, there may still be room for expansion.

Risk warning: Strategic new customer acquisition is slower than expected; policy support falls short of expectations.