Recommended logic: 1) On the demand side, aging is driving the continuous growth of medical demand. The number of people diagnosed and treated in hospitals across the country increased from 2,258 billion in 2011 to 3.88 billion in 2021. On the supply side, there is a gap between supply and demand in medical resources, and policies encourage social medical treatment to supplement the current shortage of public medical resources; 2) The central and western regions are scarce in medical resources, with tertiary hospitals accounting for less than 10%, and demand for densely populated medical services is high; 3) The company currently holds 11 hospitals. Some of its hospitals have become regional medical centers, and extracorporeal medical institutions have abundant resource reserves. Subsequent growth momentum is strong.

The aging trend is driving the increase in demand for medical care, and there is a gap between supply and demand for medical services. The aging trend of China's population is intensifying, driving industry growth from the demand side of medical services. The number of people diagnosed and treated in hospitals across the country increased from 2,258 million in 2011 to 3.88 billion in 2021, and the average income of general hospitals increased from 170 million yuan in 2011 to 540 million yuan in 2021. From the supply side of medical resources, high-quality medical resources are insufficient, and tertiary hospitals account for only 9% of the number of patients. The bed utilization rate has stabilized above 95%. There is a gap between supply and demand in medical resources. The current situation of insufficient resources.

Medical resources are insufficient in the central and western provinces, and hospitals are being laid out at a new milestone. New Mileage internal hospitals are mainly concentrated in Henan Province, Jiangsu Province, etc., and extracorporeal hospitals are distributed in various provinces and cities such as Chongqing, Shanxi, Henan, and Shaanxi. According to the “2022 China Health Statistics Yearbook”, the number of the top three hospitals in Chongqing, Shaanxi, Shanxi and other places in 2021 was 34, 51, and 44, respectively. The proportion of tertiary hospitals in Chongqing was 7.6%, the proportion of tertiary hospitals in Shaanxi was 6.5%, and the proportion of tertiary hospitals in Shanxi was only 4.3%. It is at a low level. Medical resources are scarce. The new milestone will make up for insufficient public medical resources in the region to provide patients with medical service resources.

The “1+N” model creates regional medical centers, and extracorporeal medical institutions are rich in resources. The company currently controls 11 hospitals and uses the 1+N style of “one general hospital+multiple specialist branches” to build regional medical centers. Currently, the company's Wafangdian Third Hospital, Lankao First Hospital, Xuyi County Hospital of Traditional Chinese Medicine, Siyang Hospital, and Chongzhou No. 2 Hospital have become regional medical centers; in addition, the company's controlling shareholders have a total of 33 listed companies' in vitro hospitals across the country, distributed in 15 provinces and cities, covering a wide range of medical services to support the medical service needs of various regions.

Profit forecast and investment advice: We expect the company's revenue to be 3.42 billion yuan, 4.09 billion yuan and 4.75 billion yuan respectively in 2023-2025, with growth rates of 8.5%, 19.5%, and 16.2%; net profit to mother will be 0.3 billion yuan, 110 million yuan, and 160 million yuan, respectively, with growth rates of -83.5%, 337.2%, and 42.4%. The corresponding EPS is 0.01 yuan, 0.03 yuan, and 0.05 yuan respectively. It is recommended to pay close attention.

Risk warning: risk that the health service sector's revenue falls short of expectations; risk of medical malpractice; policy risk, etc.