Matters:
On April 27, 2024, the company released the 2023 Annual Report and the 2024 First Quarter Report. In 2023, the company achieved operating income of 695 million yuan, a year-on-year decrease of 3.04%, and net profit to mother of 42 million yuan, a year-on-year decrease of 37.53%. 2024Q1 achieved operating income of 123 million yuan, a year-on-year increase of 14.00%, net profit to mother - 12 million yuan, and the loss margin narrowed by 47.70%.
Commentary:
The demand side is relatively weak, and the company's short-term performance is under pressure. Revenue side: Due to some changes in the medical industry in recent years, recruitment demand was weak. The company's performance declined slightly in 2023, achieving operating income of 695 million yuan, down 3.04% year on year, and net profit of 42 million yuan, down 37.53% year on year. Expense side: The overall sales and management expenses rate increased, mainly due to the company adding a specialist product sales team and hiring third-party services during the restructuring period. The sales, management, and R&D expenses rates were 15.14%, 11.96%, and 20.85%, respectively. The year-on-year changes were +1.55pp, +0.50pp, and -1.30pp.
The revenue of the electronic medical records platform is steady, and specialist electronic medical records are making outstanding progress. In 2023, the company's electronic medical records platform software sales were stable, with revenue of 208 million yuan, which was basically the same as the previous year. In total, it helped 31 medical institutions pass electronic medical records level 5 or above certification, and the quantity and specifications are in the leading position in the industry. In the field of specialist electronic medical records, in 2023, the company continued to upgrade the emergency first aid platform, launched the Jiahe Integrated Emergency First Aid Platform, and deployed and launched in the top three hospitals, including the First Affiliated Hospital of Zhengzhou University and the General Emergency Hospital, with annual revenue of 0.18 billion yuan, a threefold increase over the previous year. According to IDC statistics, in 2022, the company continued to lead the Chinese electronic medical records market and ranked first in the electronic medical records segment for the 9th consecutive year.
The field of medical big data has a stable position, and data products have reached the county area. In 2023, the company actively explored the integration of new technology and medical business scenarios, launched the self-developed “Hucang Integrated” data center, and continued to expand its product coverage, reaching the fields of urban medical groups and county medical communities. It has successively built many group hospitals such as BOE, Taikang, and various county medical community projects such as Tanghe, Tongnan, and Xinzheng. Related products have helped more than 60 medical institutions to pass high-level evaluation through connectivity. According to IDC statistics, in 2022, the company's market share in the medical big data field was 8.8%, ranking in the top three for 4 consecutive years.
Follow the AIGC trend and develop large-scale medical model enabling products. In 2023, AIGC technology continued to expand from general to specific industries. The company followed the trend and launched the Jiahe Medical Big Model, using the GPT architecture to achieve self-research throughout the process, with a total number of training tokens reaching 14 billion. Combining medical field data such as medical books, clinical pathways, literature guidelines, clinical data, and doctor-patient dialogues, the model supports nearly 20 medical tasks such as intelligent triage, intelligent pre-diagnosis, disease diagnosis and prediction, diagnosis and treatment plan recommendations, and intelligent follow-up. Using the AIGC model to continue to empower its products, the company's product value is expected to continue to increase.
Investment advice: The company is a leading enterprise in electronic medical records and medical big data solutions in China. It is estimated that the company's net profit for 2024-2026 will be 1.08, 1.51, and 191 million yuan, corresponding EPS of 0.78, 1.09, and 1.38 yuan, respectively. Referring to the company's history and comparable company valuation levels, the company will be given 40 times PE in 2024, corresponding to a target price of about 31.2 yuan, maintaining a “recommended” rating.
Risk warning: The release of downstream demand falls short of expectations, industry competition intensifies, and policy progress falls short of expectations.