Incidents:
The company released its 2023 annual report and 2024 quarterly report. Throughout 2023, the company achieved operating income of 2,847 billion yuan, a year-on-year increase of 4.70%; net profit to mother of 500 million yuan, a year-on-year decrease of 8.72%; deducted non-net profit of 481 million yuan, a year-on-year decrease of 8.37%. With 2024Q1, the company achieved operating income of 708 million yuan, an increase of 5.03%; net profit to mother of 173 million yuan, an increase of 2.51% year on year; deducted non-net profit of 170 million yuan, an increase of 4.20% year on year.
Demand for diagnosis and treatment is growing steadily, and various businesses are developing steadily
In 2023, the number of dental clinics reached 3.3533 million, and the company's comprehensive business achieved revenue of 756 million yuan, an increase of 8.34%; the dental implant business achieved revenue of 479 million yuan, an increase of 6.95%; the repair business achieved revenue of 456 million yuan, an increase of 6.72%; the pediatric business achieved revenue of 499 million yuan, an increase of 2.90% year on year; and the orthodontic business achieved revenue of 499 million yuan, a decrease of 3.14% year on year.
After the collection and implementation of dental implants, the company launched a low-cost implant business and adjusted the dental implant fee system. More than 53,000 implants were planted in 2023, an increase of 47% over the previous year.
Consumption downgrade compounded the impact of collection, and profitability declined
In 2023, the company's gross margin reached 38.53%, a year-on-year decrease of 2.28 pct; the net profit margin reached 20.32%, a year-on-year decrease of 2.33 pcts. Among them, it was mainly affected by the downturn in consumption and the collection of dental implants.
In 2023, the company's management expense ratio was 10.85%, up 0.37 pct year on year; the sales expense ratio was 1.03%, which remained relatively stable; and the financial expense ratio was 1.74%, up 0.03 pct year on year. The company's expenses remain relatively stable and remain at an overall low level. Along with future improvements in operating capacity, it is expected to reduce costs and increase efficiency.
Deepen regional groups and actively develop dandelion hospitals
In 2023, the company will continue to build a regional dental hospital group. On the basis of regional dental groups such as Pinghai, Chengxi, and Ningbo, the company will also build the Hunan Dental Regional Group and the Kunming Dental Regional Group to continue to deepen the three and three system work model. Furthermore, the dandelion hospital will continue to advance. On the one hand, key doctors will participate in the dandelion branch through the dandelion program, and on the other hand, doctors will have an expert development path.
Profit Forecasts, Valuations, and Ratings
We expect the company's revenue for 2024-2026 to be RMB 3.26/38.03/4.35 billion, respectively, with year-on-year growth rates of 16.9%/14.3%, and net profit of 643/7.27/811 million yuan respectively, with year-on-year growth rates of 28.6%/13.0%/11.5%, and EPS 2.01/2.27/2.53 yuan/share respectively. We used the absolute valuation method and the relative valuation method for calculation. The absolute valuation method measured the company's target price at 79.04 yuan, maintaining a “buy” rating.
Risk warning: risk of falling short of expectations for expansion, risk of uncertain policies, risk of increased competition in the industry