The adjustment of low-strategy collaborative business has basically been completed, and the balance of profit and loss is one step closer: since entering the strategy 2.0 deepening stage at the end of 2021, the company has accelerated collaborative development with Ping An Group and adjusted low-strategy collaborative business. In H1 in 2023, the company's low-strategy collaborative business adjustments were basically completed. Although affected by this, it achieved revenue of 2.22 billion yuan (-21.5%), losses narrowed markedly, and adjusted net profit was -250 million yuan (-41.7%). The share of medical services with higher gross margins in revenue rose to 47% (+7pct year-on-year), gross margin increased to 42.9%, and the company's overall gross margin increased to 32.2%, the highest level since 2018. We believe that as strategic adjustments are implemented one after another and the business structure is continuously optimized, the company can be expected to achieve a profit and loss balance.
The resource advantages of the F side and B side are obvious, and it is expected to lead the new corporate health management track: ① The F side strategic business is growing steadily, and the penetration rate still has a lot of room for improvement: F customers refer to Ping An Group's comprehensive financial services such as life insurance, industrial insurance, health insurance, banks, etc. As of H1, 2023, the F-side strategic business has achieved revenue of 1,078 million yuan (+12.6%), and the number of paying users in the past 12 months has exceeded 38 million (+13.3%). The penetration rate among Ping An Group's nearly 229 million personal finance users is only 16.6%, and the future is promising The company continues to increase the penetration rate of the F-side strategic business.
② By integrating supply-side resources, the B-side strategic business is expected to lead the new corporate health management track: as of H1 in 2023, the company has cooperated with nearly 103,000 health service providers and more than 2,000 cooperative medical examination suppliers. Backed by Ping An Group's rich B-side customer (enterprise customer) resources, the company launched the “Easy Enterprise Health” enterprise health management product system in 2022 to solve enterprise health management pain points. As of 2023, the H1, B-side strategic business achieved revenue of 449 million yuan (+88.9%), and the cumulative number of service enterprises was 1198, an increase of 449 over the previous year, covering nearly 3.9 million enterprise employees and users. The penetration rate of enterprise customers in the Ping An Group medical ecosystem was 2.2%, and the penetration rate of enterprise customers and employees in the ecosystem was 15.6%. With rich customer resources+strong supply-side integration capabilities+high-quality products and services, the company is expected to lead the new course of enterprise health management.
Family physicians have strong service capabilities and continue to demonstrate the core competitiveness of medical services. As of 2023 H1, the company has established a team of about 50,000 internal and external doctors covering 22 departments to provide better medical and health services with strong AI capabilities. In October 2022, the company acquired Ping An Smart Healthcare for US$98 million, further enhancing its chronic disease management service capabilities and AI capabilities.
Profit forecasts, valuations, and ratings
We forecast that in 2023/2024/2025, the company will achieve operating income of 4.618 billion/5.184 billion/5.889 billion yuan, a year-on-year increase of -25%/12%/14%, and net profit of 486 million/205 million/11 million yuan, corresponding to EPS of -0.43/-0.18/0.01 billion yuan. We used the market sales ratio method to value the company, giving the company 3.9 times PS in 2024 and a target price of HK$19.81. For the first time, we covered the “increase in holdings” rating given to the company.
Risk warning
The risk of customer expansion falling short of expectations; risk of increased market competition; risk of policy uncertainty; risk of impairment of goodwill; dependence on major shareholders; and the share of related transactions is relatively high.