FY23's performance was in line with expectations and maintained the 2024 adjusted net profit growth rate guide: revenue in 2023 increased 27.6% year over year (+34.0% after excluding the impact of nucleic acid testing), and net profit/adjusted net profit +42.1%/+17.5% (+42.1%/+31.1% after excluding nucleic acid). The overall results are in line with the company's updated guidelines at the end of 2023. Oncology business revenue +23.6%, accounting for 43.6% of total revenue. Hospital business revenue was $3,890 billion (+28.5%, +35.4% after excluding nucleic acid), of which outpatient/inpatient revenue was 1,351 million/2,539 million yuan (+23.1%/+31.6%), respectively, and outpatient revenue after excluding nucleic acid testing +43.2%. The number of surgeries increased by 34.6% to 83,770. Gross margin and adjusted net margin were 31.6%/17.5% (-0.6/-1.5 percentage points), respectively. Management said that 2M24's overall revenue increased by more than 40% year over year and maintained previous guidance: adjusted net profit growth of more than 25% in 2024.
The progress of newly opened/construction/new merger and acquisition hospitals has been updated, with a target of 14,000 beds by the end of 2025:1) Newly opened Phase II hospitals: Chongqing Phase II (1,000 beds), Danxian Phase II (500 beds), and Chengwu Phase II (350 beds) have been put into operation in February 2023, July 2023, and January 2024, respectively. 2) New hospital: Dezhou Hygea passed the tertiary general hospital inspection in March 2024. The company expects Wuxi (Level 3) and Changshu Hygea to be put into use in early 2025 and the end of 2025, respectively. 3) New merger and acquisition hospitals: Yixing Haijia consolidated for June-December 2023, with year-on-year revenue +30.8%; Chang'an Hospital consolidated for September-December 2023, with revenue +28.9% year-on-year. The company expects these two hospitals to achieve monthly profit margins reaching the group average in 2024. Furthermore, the company said that as capital expenses are reduced after 2024, more capital will be used for mergers and acquisitions, and the company will continue to carry out mergers and acquisitions as planned in 2024-25. By the end of 2023, the company will be able to open 10,000 beds, and the target is to open 14,000 beds by the end of 2025.
Raise the target price slightly and maintain purchases: Based on the company's latest operating conditions and guidelines, we raised our 2024/25 revenue forecast by 1.1%/1.2% to 5.74 billion yuan/6.81 billion yuan, and introduced a 2026 revenue forecast of 8.56 billion yuan. Taking into account increased depreciation and amortization due to investment in new production capacity and financial expenses from potential new loans, we lowered 2024/25 net profit by 1.4%/2.5% to 860 million/1.04 billion yuan.
We slightly raised our target price to HK$49.00, corresponding to 33.0x 2024E P/E (roughly in line with the three-year average) /1.2x 2024 PEG. The company's endogenous growth is highly visible, hospital asset pricing in the primary market is declining, and the pace of mergers and acquisitions is very certain. Currently, stock prices are undervalued, and we are maintaining purchases.