Focus on resources to develop strategic business, and business restructuring has basically been completed
Ping An Good Doctor 2H23's total revenue was 2.45 billion yuan, down 27.3% year on year, lower than Visible Alpha (VA)'s agreed forecast of 2.63 billion yuan; non-IFRS net loss of 0.7 billion yuan was better than VA's agreed loss of 190 million yuan, corresponding to a non-IFRS net interest rate of -2.7%, an improvement of 10.6pp year on year. The decline in revenue was mainly due to business adjustments with low strategic synergy (which were basically completed at the end of the reporting period), and the year-on-year narrowing of losses was mainly due to an increase in the share of revenue in strategic businesses with high profitability. We adjusted the company's non-IFRS net profit forecast for 2024/2025 to RMB 1.7/0.3 billion (previous value: net profit of RMB -RMB 200/80 million yuan), and introduced a forecast value of RMB 130 million for 2026. We gave a target price of HK$18.3 (previous value: HK$24.0), corresponding to 3.5/3.1/2.7 times the 2024/2025/2026 forecast PS (WACC: 8.1%, sustainable growth rate: 2.5%; unchanged).
Medical services: Focusing on resource development strategy business, 100% service AI has enabled 2H23's medical service revenue to drop by 28.5% year-on-year to 1.04 billion yuan. Mainly due to the company's focus on resource development strategy business, the revenue of medical service types with low strategic synergy declined. The gross profit of medical services decreased by 21.1% year on year to 390 million yuan. The corresponding gross margin was 37.1%, an improvement of 3.5pp over the previous year. Mainly due to the increase in the share of revenue from high-profitability businesses, structural changes helped increase gross margin. 2H23 further empowers family doctors with AI technology. Medical AI has covered about 36,000 diseases and 15 million problems, achieved 100% service AI empowerment, and improved family doctors' work efficiency and user experience to a certain extent.
Health services: Optimizing the scale of low-margin physical sales, focusing on the “Three to Network” construction, 2H23's health service revenue fell 26.5% year-on-year to 1.41 billion yuan, mainly due to the company's adjustment of health service businesses with low coordination with managed medical strategies and low profitability, such as some physical sales. Gross profit from health services fell 5.4% year on year to 410 million yuan, corresponding gross margin was 28.8%, an improvement of 6.4 pp year on year, mainly due to the decline in the share of low-margin physical sales revenue. In the medical service network, the company further integrates online and offline medical service resources, focusing on the construction of a “three to one network”. As of 2H23, there were 4,000 partner hospitals (1H23:4,000) and 230,000 cooperative pharmacies (1H23:
22.6 million households). Looking ahead to 2024, we expect the company to further utilize Ping An Group's corporate customer resources to focus on steadily expanding the number of strategic business customers to achieve qualitative revenue growth.
F-end's penetration rate in Ping An Group has increased steadily, and revenue continues to grow, and the company has made steady progress in expanding users with high strategic value. In 2023, the total revenue from the company's F-side strategic business was 2.20 billion yuan, up 14.8%. The number of paying strategic business users in the past 12 months exceeded 32 million, an increase of 10.7%. The penetration rate among Ping An Group's 230 million personal finance users reached about 14.0%, and the penetration rate increased steadily. The B-side strategic business recorded revenue of 1.08 billion yuan, an increase of 81.2%, and the total number of service companies reached 1,508 (1H23:1,198). The company's corporate customer penetration rate in Ping An Group's healthcare and pension ecosystem is 2.7%. In our opinion, there may still be room for expansion.
Risk warning: Strategic new customer acquisition is slower than expected; policy support falls short of expectations.