Incident: On March 26, 2024, the company released its 2023 annual report. During the reporting period, it achieved operating income of 4,077 billion yuan, an increase of 27.6% over the previous year, and achieved adjusted net profit of 713 million yuan, an increase of 17.5% over the previous year.
After excluding the one-time impact of nucleic acid, performance growth was impressive, and profit margins were under phased pressure during the expansion period. In 2022, due to the high incidence of the epidemic, a certain amount of nucleic acid testing revenue was excluded. If the one-time impact of nucleic acid testing was excluded, the company's revenue/net profit/adjusted net profit increased by 34.0%/63.6%/31.1% year-on-year respectively in 2023, and still achieved impressive growth. The company's overall gross margin in 2023 was 31.6%, a slight decrease of 0.6 pp from the same period last year; on the cost side, the sales expenses ratio was 1.24% (up 0.8 pp year on year), and the management expenses ratio increased 0.1 pp to 10.11% year over year, mainly due to the increase in the cost of self-built and newly acquired hospitals. We expect that in the future, as the effect of hospital size gradually becomes apparent, the cost rate is expected to decrease steadily. For the full year of 2023, the company achieved an adjusted net interest rate of 17.5%, a decrease of 1.5pp compared with the same period last year.
The hospital business remained resilient, and the core oncology business grew steadily. In 2023, the company's hospital business achieved revenue of 3,890 billion yuan, a year-on-year increase of 28.5%, gross profit margin of 30.3%, and a year-on-year decrease of 1.4pp; outpatient revenue was 1,351 billion yuan, up 23.1% year on year; inpatient revenue was 2,539 billion yuan, up 31.6% year on year; the slight slow growth rate of outpatient revenue was mainly affected by the high performance base brought about by nucleic acid testing in the same period of 2022. The company's core oncology business maintained rapid growth in 2023. Oncology MDT achieved revenue of 1,778 billion yuan, an increase of 23.6% year on year; non-oncology related business achieved revenue of 2,298 billion yuan, an increase of 30.8% year on year. The company continues to strengthen its comprehensive oncology service capabilities. The number of surgeries reached 83,800 in 2023, an increase of 34.6% over the previous year. Among them, the proportion of grade 3 and 4 surgeries and interventional surgeries increased further.
The extension continues to advance, and the integration of the new hospital is progressing smoothly. The company's epitaxial acquisition progressed smoothly in 2023. In May, the company announced the acquisition of 89.2% of Yixing Haijia's shares, in July, the company again announced the acquisition of 100% of Xi'an Chang'an Hospital's shares, and announced the acquisition of Qufu Chengdong Hospital at the end of November. The integration of the acquired hospital progressed smoothly. Since the company's acquisition, Yixing Haijia's revenue increased by 30.8% over the same period, and Chang'an Hospital's revenue increased by 28.9% over the same period. In addition to this, the second-phase expansion of the company's existing hospitals and self-construction of new hospitals continue to advance rapidly. Currently, 3 new hospitals in Dezhou, Wuxi, and Changshu are under construction, which are expected to be put into use in 2024-2025; the second phase of the Chongqing Haijia, Shan County Haijia, and Chengwu Haijia projects were put into operation in early 2023-2024, and the company is still growing rapidly.
Profit forecast and investment suggestions: According to the annual report, we adjusted the profit forecast. The company is expected to achieve operating income of 51.27, 62.70, and 7.489 billion yuan in 2024-2026, up 25.8%, 22.3%, and 19.4% year on year; net profit to mother of 9.08, 11.07, and 1,384 billion yuan (the values before the 2024-2025 forecast were 9.87 billion yuan and 1.27 billion yuan, respectively), up 32.9%, 21.9%, and 25.0% year on year. Considering that the company is a leading company in scarce oncology medical services, the industry has extensive long-term space, and the company's management is excellent and operating efficiency is significantly superior to its peers. In the future, it is expected that it will gradually cover the whole country through self-building+mergers and acquisitions to maintain a “buy” rating.
Risk warning events: risk of hospital expansion falling short of expectations; risk of medical accidents; risk of policy disturbance; risk of market size falling short of expectations, etc.