2023 results are in line with our expectations
The company announced its 2023 results: revenue of RMB 10.108 billion, up 27.9% year on year; net profit to mother of RMB 258 million, a year-on-year decrease of 3.1%, in line with our expectations. The company's gross margin in 2023 was 18.9%, up 2.3 percentage points year on year, mainly due to the remarkable cost control effect. After excluding the impact of Huaiyin Hospital's one-time impairment, net profit from stock to mother increased by 23.1% year on year.
Development trends
The hospital network layout has been further expanded, and hospital business revenue continues to grow. By the end of 2023, the company managed and operated a total of 134 medical institutions (13 level-3 and 25 level-2) in 10 provinces and cities in China, with a total number of operating beds of 21,515. In 2023, the company's hospital business revenue was 9.406 billion yuan, up 33.4% year on year; of these, outpatient service revenue was 3,933 billion yuan, up 32.5% year on year; inpatient service revenue was 5.473 billion yuan, up 34.0% year on year, mainly due to the increase in the number of patients diagnosed and treated and the increase in bed usage.
Revenue from the stock of owned hospitals has been growing steadily. In 2023, the operating income of the stock owned hospitals was 6.012 billion yuan, up 7.0% year on year; net profit to mother was 349 million yuan, up 23.1% year on year; gross profit margin of the hospital business was 18.2%, up 2.7 percentage points year on year. After excluding the impact of Huaiyin Hospital's one-time impairment, the hospital business segment's profit margin was 9.1%, up 2.3 percentage points year on year. In 2023, the number of routine outpatients in existing hospitals increased by 6.3% year on year, the number of hospitalizations increased by 9.2% year on year, the number of level 3 and 4 surgeries increased by 1.2% year on year, and the number of operations increased by 1.4% year on year. We believe that the revenue growth of existing private hospitals has been steady, and management efficiency has been further improved.
The profitability of Liaojian and Jiangneng hospitals continues to increase. In 2023, the operating income of Liaojian and Jiangneng Hospitals was 4,096 million yuan, with net profit of 295 million yuan; the gross profit margin of the hospital business was 18.7%, up 2.8 percentage points year on year, and the hospital business segment's profit margin was 11.7%, up 2.5 percentage points year on year.
In 2023, the number of routine outpatients at Liaojian and Jiangneng hospitals increased 15.0% year on year, the number of hospitalizations increased 10.8% year on year, the number of level 3 and 4 surgeries increased 13.2% year on year, and the number of operations increased 17.4% year on year. We believe that the business volume of Liaojian and Jiangneng Hospitals is increasing rapidly.
Profit forecasting and valuation
Considering the decline in the negative impact of Huaiyin Hospital, we maintained 2024/2025 net profit of 551/715 million yuan, an increase of 113.8%/29.8% year-on-year. We maintain our outperforming industry rating and target price of HK$5.6, corresponding to a price-earnings ratio of 11.7/8.6 times 2024/2025. The current stock price corresponds to the 2024/2025 price-earnings ratio of 8.2/6.0, with 44.0% upside from the target price.
risks
The operation of own hospitals falls short of expectations, and goodwill or asset disposal is impaired.