The company issued a 23-year results announcement. Excluding the decline in revenue due to low strategic synergy business, losses continued to narrow sharply year-on-year driven by cost reduction and efficiency. Revenue in 2023 was -24.7% YoY to 4.674 billion yuan, net loss to mother narrowed by 49.3% YoY to 323 million yuan; gross margin +5.3 pct YoY to 32.3%. Expenses declined and cost rates increased. Sales and management expenses decreased by 25.4% and 15.3%, respectively, and sales and management expense ratios changed by -0.2 pct and +3.5 pct, respectively.
The optimization of the business structure has basically been completed, and resources have accelerated focus on strategic business; F/B-side strategic business paying users are growing rapidly, F-side users are growing steadily under a high base, B-side revenue is growing rapidly, renewal rates are high, user stickiness and recognition are constantly improving, and there is plenty of room for penetration rate improvement. The number of annual paid users of the company was -7.3% to 40 million, and the number of annual paid users in the strategic business was 10.7% to 32 million, of which the F-side revenue was 2.205 billion yuan (YoY +14.8%), and the number of annual paid users of the strategic business exceeded 26.3 million yuan (YoY +81.2%); B-side revenue was 1,079 million yuan (YoY +81.2%), and the number of annual paid users in the strategic business was +75.0% to 5.1 million. Medical services: Revenue fell 19.9% year-on-year to $2,075 billion due to the transformation of business strategies, continuing to enhance the service capabilities of family doctors, specialists and famous physicians. Health services: Revenue fell 28.1% year on year to 2,598 billion yuan due to business restructuring optimization and adjustment.
Profit forecasting and investment advice. In terms of medical services, revenue is expected to grow further as the F/B penetration rate increases, and business strategy transformation is expected to drive a steady increase in gross margin from 24 to 26. In terms of health services, the continued penetration of the B-side is expected to drive 2C transformation. Revenue recovery is expected to begin in '24, and business structure optimization may drive a gradual increase in gross margin over 24-26. The expense ratio is expected to continue to decline from 24 to 26, and is expected to turn a loss into a profit in '26. The adjusted net profit for 24-26 will be -2.05/-0.35/40 billion yuan. Considering the optimization of the company's business structure, based on comparable company valuations, a reasonable value of HK$14.99 per share was given for 24 years. Maintain a “buy” rating.
Risk warning: Revenue fell short of expectations due to business structure optimization and adjustment effects falling short of expectations; 2F and 2B customer expansion falling short of expectations; membership growth falling short of expectations; loss expansion due to cost increases, etc.