Event: The company announced its results for the third quarter of 2023. 2023Q1-3 achieved operating income of 16.047 billion, a year-on-year increase of 22.95%, net profit of 3.181 billion, a year-on-year increase of 34.97%, and a net profit of 3.105 billion dollars after deducting non-attributable net profit of $3.105 billion, an increase of 24.03% year-on-year. The third quarter alone achieved operating income of 5.795 billion dollars, up 17.22% year on year, net profit of 1,469 million dollars, increase of 37.82% year on year, and net profit after deduction of 1,346 billion dollars, up 20.07% year on year. Among them, net profit of the mother exceeded our expectations.

The overall operation is steady, and the ability to manage expenses is outstanding. Under the high base for the same period last year and the challenging market environment this year, the company's Q3 operating performance remained steady, and there was good growth on both the revenue side and the profit side. Among them, the growth rate of net profit was impressive. As the company's scale effect continues to expand, the gross margin for the third quarter alone was 56.31%, up 0.15pct year on year. The company has outstanding cost management capabilities, and the cost side has remained stable. The management expense ratio was 13.08%, down 1.29pct year on year, the sales expense ratio was 9.65%, the year-on-year increase of 0.11pct, the R&D expense ratio was 1.70%, and the year-on-year decrease was 0.09pct. Other income for the third quarter alone was 172 million yuan, compared to 17 million in the same period last year, so the growth rate of net profit was higher than that of the net profit of the net profit of the net income after deducting non-caliber.

The hierarchical diagnosis and treatment network continues to deepen, and the share repurchase plan shows the company's confidence in future development. As of June 30, 2023, the company has set up 229 hospitals and 168 outpatient clinics in mainland China. According to responses from the company's investors on the Q&A platform, the number of medical institutions that have been in business for three years or less accounts for 30% to 40%, accounting for 50%-60% in 4-10 years. The development of new hospitals+old hospitals has helped the company's future performance grow steadily. At the same time, in terms of extended mergers and acquisitions, it was announced on September 20 that they intend to acquire 19 medical institutions. These hospitals had total revenue of 523 million yuan and net profit of 7.03 million yuan in 2022. Performance is still in a period of rapid decline. It is expected that after the acquisition is completed, the company's performance will be further enhanced. At the same time, on the basis of completing the initial repurchase plan, the company announced on October 25 that it plans to use 200 million yuan of its own capital to buy back the company's shares at a price no higher than 26.98 yuan/share, which will be used to implement equity incentive plans or employee stock ownership plans, demonstrating the company's confidence in future development and enhancing investor confidence.

Maintain the “Overweight” rating. Maintaining our previous profit forecast, we expect to achieve operating income of 21.168 billion, 26.949 billion, and 33.263 billion in 2023-2025, up 31.4%, 27.3%, and 23.4% year on year. Net profit is expected to be 3.394 billion, 4.272 billion, and 5.520 billion, respectively, up 34.4%, 25.9%, and 29.2% year on year, with corresponding price-earnings ratios of 51 times, 40 times, and 31 times. As the company's domestic and foreign diagnosis and treatment networks continue to expand, brand advantages and scale advantages will be further deepened, and business scale and profitability will also be further expanded, so it will maintain its “increased holding” rating.

Risk warning: risk of price reduction in collection, risk of increased competition, risk of medical malpractice.