Introduction to this report:
The performance is in line with expectations, and profitability is improving steadily. As medical consortium cooperation continues to advance, the number of doctors is steadily increasing, and it is expected that steady and rapid growth will continue and maintain the rating of increased holdings.
Summary:
The performance was in line with expectations, and the rating for increasing holdings was maintained. The company achieved operating income of 2,323 billion yuan (+43.0%), adjusted net profit of 305 million yuan (+53.6%), and net operating cash flow of 410 million yuan in 2023. The performance was in line with expectations. The gross profit margin was 30.1% (-0.6pct), and the adjusted profit margin was 13.1% (+0.9pct), and profitability was further improved. The adjusted net profit for 2024-2026 is estimated at RMB 3.99/5.19/670 million, an increase of 31%/30%/29% year-on-year. Referring to comparable company estimates, the 2024 PE 30X is given, with a target market value of RMB 12 billion, corresponding to a target price of 48.66 yuan (HK$52.72; the exchange rate is RMB):
HKD = 1:1.08), maintaining an increase in holdings rating.
The customer base has been growing steadily, and the ability to gather medical treatment has been demonstrated. In 2023, the company added 804,000 new customers, and the cumulative number of customers at the end of the year was 3.537 million; the number of customer visits was 4.297 million (+45.9%), the customer return rate steadily increased to 65.2% (+1.2pct), and the average cost of each visit was 541 yuan (-1.9%), which remained stable. In 2023, the number of member visits was 1.568 million (+74.8%), the member return rate was 85.6%, and the proportion of member revenue in offline revenue increased to 47% (+7.4pct). The company's medical consortium cooperation progressed steadily, and the number of doctors continued to increase. In 2023, the number of doctors increased net by 7793 (+26%), including a net increase of 960 offline (+25%); continuous strengthening of in-house doctor training, the performance ratio of offline revenue increased to 34.60% (+8.8pct).
Offline growth is rapid, and expansion is progressing steadily. The company expanded its diagnosis and treatment service network through self-construction and mergers and acquisitions, added 9 new stores in 2023 (2 merged in 2024), expanded 2 new cities in Wuhan and Kunshan, and operated 56 medical institutions in 16 cities. In 2023, offline store revenue was 2,037 million yuan (+49.2%), and online revenue was 286 million yuan (+10.2%). In March 2024, it is planned to acquire 100% of Baozhongtang Singapore's shares and officially begin a new journey of internationalization of traditional Chinese medicine. The number of doctors in the company increased by around 26% in 2023. In addition, the company continues to increase investment in research and development to commercialize and standardize medical and health solutions. The first Chinese herbal medicine preparation, Tongji Runny Nose Relief Granules, obtained a medical institution's traditional Chinese medicine preparation registration certificate in December 2022, and 6 products, including spleen strengthening and lipid-relieving cream, obtained registration certificates for traditional Chinese medicine formulations from medical institutions in 2023.
Catalysts: Medical consortium cooperation continues to advance, and self-built and extended mergers and acquisitions expansion projects are being implemented Risk warning: Risk of loss of resources for high-quality traditional Chinese medicine practitioners due to increased competition; expansion falls short of expectations