Event: The company released its 2023 annual report. In 2023, the company achieved operating income of 13.408 billion yuan (-33.89%), net profit of 307 million yuan (-78.56%), net profit of 295 million yuan (-81.90%), and operating cash flow of 1,921 million yuan (+17.20%); in Q4 2023, it achieved operating income of 3.116 billion yuan (-33.03%), net profit to mother of 223 million yuan, net profit of 187 million yuan.
Credit impairment affects apparent performance, and regular business operations are steady. Due to the high base due to COVID-19 screening during the same period, the company's apparent revenue declined markedly in 2023. Combined with credit impairment losses of 383 million yuan from accounts receivable accrued, the apparent profit was also significantly pressured. Despite being affected by changes in the medical industry's business environment, the company's regular business remained steady throughout the year, showing a certain degree of operational resilience, including: ① Diagnostic services: achieved revenue of 5.187 billion yuan (+11.91%) in 2023, of which ICL achieved revenue of 4.718 billion yuan (+16.73%), added 238 new level-III hospitals, increased the revenue share of tertiary hospitals to 32.8%, and infection/neuroimmunology/hematology programs increased by 142%/102%/69% respectively; ② Diagnostic products: achieved revenue in 2023 8.686 billion yuan (-7.58%), of which 403 million yuan for its own products, 8.283 billion yuan (+5.32%) for channel products, the subsidiary “Gloria Spectrum” self-developed liquid chromatography tandem mass spectrometry testing systems KLPMDU, KLPMD-R and the trace element analyzer CalQuant-E ICP-MS were approved for listing, and the subsidiary “Dispert Diagnostics” self-developed time-of-flight mass spectrometry testing system DP-TOF 96A obtained a Class II medical device registration certificate. The subsidiary “Dian Biotech” developed and produced rapid real-time fluorescence quantification PCR instruments, “human ALDH2 gene polymorphism test kit (fluorescence PCR - melting curve method)”, and “human MTHFR gene polymorphism test kit (fluorescence PCR - melting curve method)” have obtained registration certificates for three types of medical devices.
Subject capabilities continue to be strengthened, and testing programs are further enriched. The company continues to closely integrate technology platform expansion with disease solutions, improve comprehensive hematological diagnosis service solutions, develop 164 new projects such as flow, ddPCR, and NGS, launch an exclusive project, myeloid tumor NGS-MRD, achieve cooperation with the top 5 hospitals in the country, improve tumor testing production lines and cancer coverage, provide more than 180 projects, more than 260,000 tests throughout the year, and provide early tumor screening services for more than 200,000 people. Exclusively introducing the world's leading Alzheimer's disease blood testing technology (IP-MS), which is expected in 2024 Complete technology implementation and related product transformation. The company launched a total of 1,023 new testing projects in 2023, with special inspection revenue of 2,049 billion yuan, accounting for 39.50% of traditional diagnosis revenue. In addition, the company added 46 new co-built laboratories in 2023, increasing the total number to 700. The business revenue increased 26% year on year, the revenue of level II and level III hospitals contributed more than 94%, and added 27 precision centers. The cumulative total of 70 precision centers reached 70, of which 31 were profitable, and business revenue increased 34% year on year.
Management optimization and digital transformation promote operational efficiency. The company continues to iterate on the “Yundi Platform”, the central brain for sample distribution, increasing the operating efficiency by 30% and increasing the sample volume per delivery by 58%, covering 31 provinces and cities in China. It has 2000+ logistics outlets. 95% + specimens are delivered within 12 hours within the province, 12-36 hours across provinces, and 90% of reports are delivered within 24 hours. At the same time, the company launched an overall digital pathology solution, completed the launch of the “Dizhi Test” applet, providing one-stop customer terminal services for more than 5,300 medical institutions. Its “Medical Strategy Technology” AI assisted diagnosis products distributed nearly 2 million reports, and the original PD-L1 immunohistohistochemical pathology image processing software PathoInsight-PD L1 obtained a Class II device registration certificate. As the management system becomes more perfect and digital applications are further expanded, the company's operational efficiency is expected to be further improved in the future.
Investment advice: The company is a leading third-party medical testing service provider in China. With the integrated development of “product+service”, the regular business is expected to grow steadily over the long term as the national layout improves, operational efficiency continues to increase, and the proportion of special examinations continues to increase. Considering changes in the industry's business environment and the recovery in demand for laboratory testing volumes falling short of expectations, we lowered the company's 2024-2026 net profit forecast to 7.74/9.73/1,183 billion yuan, up 151.85%/25.70%/21.53% year-on-year respectively, and EPS was 1.24/1.55/1.89 yuan, respectively. The current stock price corresponding to 2024-2026 PE was 8 times 11/9/8 times, maintaining the “recommended” rating.
Risk warning: risk of routine business recovery falling short of expectations, risk of accounts receivable repayment falling short of expectations, risk of a sharp drop in inspection service prices.