Revenue for 2023 fell short of our expectations, and the loss margin was less than our expectations for Zhiyun Health: revenue increased by 23.5% to 3.69 billion yuan, lower than our previous expectations, mainly due to the drag of quasi-marketing and pharmacy solutions; an adjusted net loss of 75.1 million yuan was recorded, corresponding to an adjusted net loss rate of 2.0%. The loss margin was less than our previous expectations, mainly benefiting from the company's scale effect and expense control.
Development trends
In-hospital solutions are growing steadily, and P2M development models are being explored. In 2023, Zhiyun Health's in-hospital solution revenue recorded 2.87 billion yuan, up 31.5% year on year. Among them, revenue from value-added solutions increased 40.1% year over year to 2.3 billion yuan, while subscription solution (precision marketing) revenue fell 13.4% year on year to 410 million yuan, mainly due to the adverse effects of the pandemic and industry environment at the beginning of last year. In 2023, Zhiyun Health explores the P2M (from patients to industry) development model, and carries out strategic cooperation with pharmaceutical companies to sell Zhiyun Health's proprietary products with ownership, sales rights or other exclusive rights. The company has announced the layout of products such as esujalin, dagliflozin, and sevilam. The results will reveal that the company also has related pipelines in the fields of oncology, anti-allergy, and rare diseases. In 2023, P2M contributed approximately $100 million in revenue from in-hospital solutions. Pharmacy Solution's revenue in 2023 increased 6.9% year-on-year to 660 million yuan. Management publicly stated that the company's resource investment in 2023 will focus on the hospital sector, and it is expected that the P2M business will gradually expand into the pharmacy sector starting in 2024. The revenue of personal chronic disease management solutions fell 15.4% year-on-year to 160 million yuan in 2023. The company optimized its revenue structure and focused on improving operational efficiency.
The scale effect is beginning to show, and the margin of loss narrows. Thanks to resilient revenue growth and initial evidence of operating leverage, Zhiyun Health's adjusted net loss ratio narrowed by 9.1 percentage points to 2.0% year-on-year in 2023. We believe that as the scale of the P2M business expands, the company's profit level is expected to improve further.
Zhiyun Health Hospital's internal section completed financing. On January 12, 2024, Zhiyun Health issued an announcement. The subsidiary Anhui Intelligent Medical Huiyun completed a strategic financing of 200 million yuan. The investor is a state-owned background fund. Anhui Intelligent Medicine Huiyun is mainly responsible for operating the hospital's SaaS digitization and related business, accounting for about 70% of the group's revenue. The financing corresponds to the valuation of Anhui Intelligent Medicine Huiyun at 4.7 billion yuan.
Profit forecasting and valuation
Taking into account the headwinds facing precision marketing and other businesses, the 2024 revenue forecast was lowered by 21.2% to 4.38 billion yuan, and the adjusted net profit forecast for 2024 was adjusted from 4.21 million yuan to 26.94 million yuan, taking into account the company's scale effect and cost control. Introduce the 2025 forecast: estimated revenue of $5.10 billion, and forecast adjusted net profit of $78.83 million. Maintain the outperforming industry rating and reduce the target price by 60% to HK$4.0 (switching the valuation to 2024, based on 1.9 times 2024 P/GP), taking into account the decline in the industry's valuation center. The company is currently trading 1.5 times the 2024 P/GP, which corresponds to 37% upside.
risks
Uncertainty in the macro environment; changes in industry regulation; increased market competition; loss of key customers.