Incident: Recently, the company released its 2023 annual report: annual revenue of 8.540 billion yuan, a year-on-year decrease of 44.82%, mainly due to a decrease in testing demand related to public health events, the company's medical diagnosis service revenue dropped significantly; as a result, the company's net profit to mother was 643 million yuan, a year-on-year decrease of 76.64%; deducted non-net profit of 365 million yuan, a year-on-year decrease of 86.53%. As China's medical order returns to normal, patients' demand for medical treatment is gradually being released, and the company's revenue from routine medical diagnosis services is recovering.
The company plans to pay a cash dividend of 0.88 yuan (tax included) per share to all shareholders. The total amount of cash dividends to be distributed in 2023 and the amount of share repurchases already implemented in 2023 is RMB 499 million, accounting for 77.56% of net profit attributable to mother.
Core business is rising steadily, with significant growth in key disease areas
The company is customer-centered, continuously enhances service capabilities, and empowers efficient collaboration across the entire service chain. In 2023, routine medical examination revenue was 7.726 billion yuan, an increase of 15.35% on the same scale.
(1) Significant growth in key disease areas: Among them, neurological and mental disease diagnosis business increased 30.32% year on year, infectious disease diagnosis business increased 49.74% year on year, kidney and rheumatic disease diagnosis business increased 26.66% year on year, cardiovascular and endocrine disease diagnosis business increased 28.78% year on year (2) Innovative products continued to develop 412 testing projects in 2023 based on various disease diagnosis and treatment needs, with a total number of testing projects exceeding 4,000. In the past three years, new development projects brought in revenue of 638 million yuan in 2023.
(3) Continuous optimization of the customer structure: The company has established 49 medical laboratories in the Mainland, Hong Kong and Macao, and has built nearly 800 laboratories with partners; the customer revenue share of tertiary hospitals has further increased by 4.73 pcts to 43.13%, and more than 20 precision medicine centers in tertiary hospitals have been added, driving the company's overall business to a high-end level.
The reduction in revenue volume and the accrual of accounts receivable affected the net profit level. It is expected that in 2023, the company's comprehensive gross margin decreased by 6.65 pct to 36.48% year on year; the sales expense ratio, management expense ratio, R&D expense ratio, and financial expense ratio were 11.89%, 8.37%, 5.47%, and -0.01%, respectively. The year-on-year increase was 2.13pct, 1.94pct, 1.38pct, 0.07pct; under the combined impact, the company's overall net interest rate decreased by 10.91 pct to 7.46% 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. In addition, the company accrued credit impairment losses of 489 million in 2023 (mainly bad debt losses on accounts receivable), an increase of 233 million compared to 256 million in 2022, which also had a negative impact on the company's net profit.
At the same time, we also saw that the company's repayment trend is good: accounts receivable in 2023 were $5.335 billion, a decrease of $1,690 billion compared to $7.025 billion in 2022. We believe that as the company uses refined management to improve quality and efficiency, further reduce production costs, and strengthen the repayment of accounts receivable, the profit level is expected to gradually increase this year.
The base figure affects the accumulation of impairment charges, and 24Q1 performance continues to be under pressure
In the first quarter of 2024, the company achieved operating income of 1,841 billion yuan, a year-on-year decrease of 13.05%. The main reason was that the year-on-year data base was high, and the company's business returned to normal. The first quarter was a traditional off-season; net profit to mother - 19 million yuan, after deducting non-net profit - 29 million yuan, of which credit impairment losses were calculated. By the end of the first quarter, the company's accounts receivable were $5.461 billion, up slightly from $5.335 billion at the beginning of the 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 9.517 billion/ 11.153 billion/ 13.030 billion, respectively, with year-on-year growth rates of 11%/17%/17%; net profit to mother will be 733 million/1,081 million/1,359 million, respectively, with year-on-year growth rates of 14%/47%/26%; corresponding to 2024 25 times PE according to the closing price on May 9, 2024.
We believe that there is plenty of room to increase the penetration rate of the ICL industry. At the same time, the company has created a characteristic industry-university-research cooperation model, established and continued to stabilize its leading position in the industry. The development prospects are promising, and the “buy” rating is maintained.
Risk warning: risk of regulatory policy changes, accounts receivable management risk, market competition risk, quality control risk.