Incidents:

The company recently released an interim performance report: During the reporting period, it achieved revenue of 2,222 million yuan (-21.5%), gross profit margin of 715 million yuan (-4.8%), gross profit margin of 32.2% (+5.6 pct), adjusted net loss of 249 million yuan (adjusted net loss of 428 million for the same period last year), showing marginal improvement. The number of paying users was 45 million (+5.8%), of which the number of F-side paying users was 38 million (+11.7%), the number of B-side paying users was 04 million (+32.4%), and the total number of B-side service companies was 1,198 (+22.5%). Medical service revenue was $1,033 million (-8.9%), gross profit margin of 443 million (+5.5%), gross profit margin of 42.9% (+5.9 pct); health services $1,189 million (-29.9%), gross profit margin of 272 million (-21.5%), gross profit margin of 22.9% (+3.4 pct).

Comment:

The basic completion of business adjustments led to a narrowing of the decline in revenue, and continuous optimization of the business structure promoted an increase in gross margin levels.

2023H1. On the premise of ensuring the efficient operation of strategic business, the company actively promotes business adjustment by optimizing resource allocation and adjusting the operating model (for example, some businesses are shifting from a self-operated model to a platform model). At the end of the reporting period, adjustments to low-strategic collaboration businesses were basically completed. The above adjustments caused revenue from related businesses to fall by 21.5% year-on-year during the reporting period, but compared to 2022 H1, the decline decreased, and performance revenue improved marginally. At the same time, the driving force and path of the company's long-term growth are clear, and the achievement of profit targets has been accelerated. In 2023H1, the revenue of the health services sector was 1,033 million yuan, down 8.9% year on year, and gross margin was 42.9%, up 5.9 ptc from the previous year. The reason was that the share of revenue from highly profitable businesses increased. Structural changes led to an increase in the sector's gross profit margin. Revenue from the health services sector was 1,189 million yuan, down 29.9% year on year, gross margin was 22.9%, up 5.6 ptc year on year. The reason was that the share of the company's low gross profit physical sales revenue declined, leading to an optimization of the business structure of this sector and an increase in gross margin.

Pursue the long-term value of sustainable development and insist on building a unique business model of “managed medical+family doctor membership system+O2O healthcare service”. By the end of the reporting period, the number of LTM paying subscribers of the company continued to expand to more than 45 million, an increase of 5.8% over 2022A. Thanks to optimization and development in all aspects, the company has achieved further breakthroughs in steady growth and focus on high-value users. During the reporting period, the F-side strategic business recorded revenue of RMB 1,07.1 million, an increase of 12.6% over the previous year. At the same time, the number of paid users of the F-side service in the past 12 months has exceeded 38 million, an increase of 13.3% over the previous year. The penetration rate among Ping An Group's nearly 229 million personal finance users has reached about 16.6%. While user stickiness and recognition continue to increase, it has achieved a steady increase in penetration.

Improve the healthcare service network and build a high-quality platform for effective use. In the first half of 2023, Ping An Health further expanded the “three to” service network of “online”, “to the store”, and “to the house to the enterprise”, with a view to taking advantage of the most extensive coverage, deepest quality control, and optimal cost performance service network in the industry. During the reporting period, the company cooperated with nearly 4,000 hospitals, 226,000 cooperative pharmacies, achieved 1-hour drug delivery in 249 cities, and launched 7*24 hour drug delivery services in 91 cities. Among them, by linking to the DTP pharmacy network, the company covers nearly 1,300 pharmacies in 26 provinces across the country to provide medical needs protection for people with oncology. In terms of the health service network, as of June 30, 2023, the company has cooperated with a total of nearly 103,000 health service providers and more than 2,000 cooperative medical examination suppliers, covering various categories and service forms such as physical examinations, dentistry, anti-aging, and pan-health.

Profit forecast and investment suggestions: The company's business adjustments have basically been completed. The company is expected to achieve revenue of RMB 5.213/61.57/7.147 billion yuan in 2023-2025, and net profit to be -5.21/-270 million or $65 million, maintaining the “increase in holdings” rating.

Risk warning: corporate profits fall short of expectations, increased competition in the industry, policy supervision risks.