Incident: Recently, the company released its 2023 annual report: annual revenue of 13.408 billion yuan, a year-on-year decrease of 33.89%, mainly due to a decrease in testing demand related to public health events, and a significant drop in the company's diagnostic service revenue; net profit to mother of 307 million yuan, a year-on-year decrease of 78.56%; deducted non-net profit of 295 million yuan, a year-on-year decrease of 81.90%
The ICL business achieved 17% growth of the same caliber in 2023, and the share of tertiary hospitals broke through a new high1. High-quality development of diagnostic services: The diagnostic service business achieved revenue of 5.187 billion yuan in 2023, an increase of 11.91% over the same caliber in 2022. Among them, ICL achieved revenue of 4.718 billion yuan, a year-on-year increase of 16.73% over the same caliber in 2022.
(1) Subject products: In 2023, 1,023 new testing projects were launched, and special inspection revenue reached 2,049 billion yuan, accounting for 39.50% of traditional diagnosis revenue. The growth rate of specialty products was remarkable. Infectious disease programs increased 142% year on year, neuroimmunology programs increased 102% year on year, and hematology programs increased 69% year on year. High-end testing products drive continuous optimization of the customer structure. The number of new tertiary hospital customers increased by 238 throughout the year, and the revenue share of tertiary hospitals increased to 32.8%.
(2) Model products: In 2023, 46 new co-built laboratories were added, bringing the total number of co-built laboratories to nearly 700. The business revenue increased 26% year on year, and the revenue of secondary and tertiary hospitals contributed more than 94%; 27 precision centers were added, and the cumulative number of precision centers reached 70. Of these, 31 achieved profits, and business revenue increased 34% year on year.
2. The IVD product business grew steadily: In 2023, the product business achieved revenue of 8.686 billion yuan, a year-on-year decrease of 7.58%; of these, the channel product business achieved revenue of 8.283 billion yuan, an increase of 5.32% over the previous year; the proprietary product business achieved revenue of 403 million yuan, and added 3 Class III certificates, 7 Class II certificates and 180 Class I certificates for the whole year.
The reduction in dilution effects and credit impairment accruals are still having an impact. The receivables trend is good 1. Profitability analysis: In 2023, the company's comprehensive gross margin decreased by 5.87 pct to 31.29% year on year, and sales expenses ratio, management expenses ratio, R&D expenses ratio, and financial expense ratio increased 2.44pct, 0.17pct to 10.32%, 7.06%, 3.23%, and 1.65%. The company's overall net interest rate decreased by 4.85pct to 4.34% year on year. The company's profitability has declined. We expect it is mainly due to a reduction in the scale of sales revenue due to a decrease in the demand for testing related to public health events, thereby weakening the dilution effect of some fixed costs such as personnel, consumables, and equipment.
2. Analysis of business quality: (1) Slight increase in credit impairment: The company accrued credit impairment losses of 383 million yuan in 2023 (mainly bad accounts receivable losses), a slight increase of 78 million compared to 305 million in 2022. (2) The repayment trend is good: accounts receivable in 2023 was 8.054 billion yuan, a decrease of 1,902 billion yuan compared with 99.56 billion yuan in 2022. (3) Good cash flow: Net operating cash flow in 2023 was 1,921 billion yuan, up 17.20% year on year.
The 24Q1 ICL business increased 10% year on year, and credit impairment losses fell year on year in the first quarter of 2024. The company achieved operating income of 2,973 billion yuan, a year-on-year decrease of 8.01%.
By business, in the first quarter of 2024, the diagnostic service business achieved revenue of 1,149 billion yuan, a year-on-year decrease of 5.97%, of which ICL revenue was 1,071 billion yuan, up 10.41% year on year; channel product business achieved revenue of 1,857 billion yuan, down 7.06% year on year; and the proprietary products business achieved revenue of 76 million yuan, down 38.71% year on year.
In the first quarter of 2024, the company's net profit to mother was 0.23 million yuan, a year-on-year decrease of 85.54%; after deducting non-net profit of 0.24 million yuan, a year-on-year decrease of 83.01%. Credit impairment losses were calculated at $93 million, a decrease of $24 million compared to $117 million in the same period in 2023. By the end of the first quarter, the company's accounts receivable were $8.337 billion, up slightly from $8.054 billion at the beginning of the year.
We believe that as the company further strengthens cost reduction and efficiency, continues to promote cost structure optimization through procurement, tendering and streamlining of the supply chain; and comprehensively strengthens accounts receivable repayment work and effectively controls the occurrence of bad debts, the profit level is expected to gradually increase this year.
Profit forecast and investment rating: Based on the analysis of the company's core business sector, we expect the company's revenue in 2024-2026 to be 14.543 billion/16.092 billion/17.832 billion, with year-on-year growth rates of 8%/11%/11%, respectively; net profit to mother will be 610 million/ 843 million/ 1,015 million, respectively, with year-on-year growth rates of 98%/38%/20%; corresponding to 2024 16 times PE according to the closing price on May 9, 2024.
We believe that there is still plenty of room for development in the inspection industry, and that the company's “product+service” has significant resource advantages resulting from two-wheel drive and mutual promotion, maintaining a “buy” rating.
Risk warning: risk of changes in regulatory policies, risk of accounts receivable management, risk of impairment of goodwill, risk of market competition, risk of quality control.