The company issued a 23H1 performance announcement. Revenue declined due to low strategic collaboration business, and losses driven by increased gross margin and lower expenses narrowed sharply year-on-year. 23H1 revenue was -21.5% year on year to 2,222 million yuan, net loss to parent narrowed by 47.1% year on year to 245 million yuan; gross margin +5.6 pct to 32.2% year on year. Expenses declined and cost rates increased. Among them, sales and management expenses decreased by 16.6% and 15.3%, respectively, and sales and management expenses increased by 1.2 pct and 2.5 pct, respectively.

The number of users paying for online consultations on the F/B side is steadily increasing, the number of users on the F side is steadily increasing under a high base, the B side revenue is growing rapidly, the renewal rate is high, user stickiness and recognition are constantly increasing, and there is plenty of room for penetration. The number of annual paying users of 23H1 company was +11.4% to 45.1 million, of which F-side revenue was 1,078 million yuan (YoY +12.6%), and the number of annual paying users +13.3% was over 38 million; B-side revenue was 449 million yuan (YoY +88.9%), and the number of annual paying users was +90.2% to 3.9 million. Medical services: 23H1's business strategy transformation led to a year-on-year decline of 8.9% to 1,034 million yuan, continuously improving the service capabilities of family doctors, specialists and famous physicians. Health services: 23H1 Business structure optimization and adjustment led to a 29.9% year-on-year decline in revenue, creating a differentiated product service matrix to meet the needs of enterprise customers.

Profit forecasts and investment recommendations. In terms of medical services, revenue is expected to grow further as the F/B side penetration rate rises, and business strategy transformation is expected to drive a gradual increase in gross margin over 23-25 years. In terms of health services, fulfillment rate recovery+continued B-side penetration+business optimization. Revenue growth is expected to pick up in '23, and gross margin gradually increasing in 23-25. It is expected that expenses will be significantly optimized in '23, the fee rate will continue to decline in the period 24-25, and the losses will continue to narrow. The net loss for 23-25 will be 4.53/322/144 million yuan, respectively. Valuation using the SOTP method, considering the optimization of the company's business structure, referring to the valuation of comparable companies, gave the medical service/health service business 6.0/3.0 times PS in 23 years, respectively, and obtained a reasonable value of HK$21.08 per share. Maintain a “buy” rating.

Risk warning: Revenue fell short of expectations due to business structure optimization and adjustment effects falling short of expectations; 2F and 2B customer expansion falling short of expectations; membership growth falling short of expectations; loss expansion due to cost increases, etc.