Revenue for the first three quarters maintained a growth trend, and gross margin improved year on year: the company's third-quarter revenue improved from the decline in the second quarter. The company achieved a total revenue of 161 million yuan in the first three quarters, an increase of 19.60% over the previous year. The increase in revenue scale helped the company's gross margin improve year-on-year. The gross margin for the first three quarters was 2.23%, compared to -15.14% for the same period last year. Since the company usually accounts for a large share of revenue in the fourth quarter, it is expected that the full-year gross margin scale effect will further drive the increase. At the same time, since the construction process of hospital-side DRG is gradually deepening, the trend of subsequent revenue scale growth and gross margin repair is expected to continue.

Good cost control helped deduct non-net interest rates to continue to recover: the company's cost control achieved certain results in the first three quarters. In the first three quarters, sales expenses, management expenses, and R&D expenses were 0.35, 0.85, and 01 billion yuan respectively. The sum of the corresponding cost rates was about 74.82%, down 8.93 percentage points from the same period last year, and the subsequent cost rate is expected to be further reduced accordingly. The reduction in the cost rate further promoted the recovery of the company's non-net interest rate. The net interest rate for the first three quarters was -73.20%, compared to -101.33% for the same period last year. Referring to historical financial data, it is expected that the recovery trend will continue throughout the year. Furthermore, in order to focus on the main business and optimize the financial structure, the company publicly sold 18.96% of Hainan Chemical Fiber's shares and Guangdong Haihong's 45% shares. Disposal proceeds combined with profit margin recovery are expected to have a certain impact on the company's net profit throughout the year.

Fixed increase implementation, increased layout of the three medical digital fields: the company fixed growth and implementation, and the company's actual controller, Guoxin Development, a wholly-owned subsidiary of the central enterprise, participated in this additional distribution and subscribed for a 30% share of the additional distribution. The company's additional capital raised this time is mainly used for projects such as the Sanyi Digital Service System Construction Project. Among them, the estimated gross margin of each income-generating project is higher than 40%, which is significantly higher than the gross profit margin of the company's 2022 annual report. If the fund-raising project is successfully implemented, it will greatly help the company's overall gross margin repair, especially for the company's digital health insurance business to catch up with comparable companies in the industry.

Investment suggestions: The gross margin of the company's digital health insurance business is expected to recover with the scale effect, and the overall profit loss is expected to be reversed. We expect the company's 2023-2025 operating income to be 4.77, 6.50, and 787 million yuan respectively, net profit of 0.01, 0.45, and 89 million yuan respectively, and EPS of 0.00, 0.05 and 0.10 yuan respectively. Maintain the “Overweight” rating.

Risk warning: Market competition intensifies, the macro environment falls short of expectations, and product development falls short of expectations.