Affected by the pace of the hospital's recruitment business, 23 years of performance were under pressure. The company discloses its 2023 annual report. In 2023, the company achieved revenue of 695 million yuan, a year-on-year decrease of 3.04%, mainly due to the pace of hospital recruitment business; net profit to mother was 42 million yuan, a year-on-year decrease of 37.53%; net profit after deducting non-return to mother was 0.36 million yuan, a year-on-year decrease of 33.74%. The gross profit margin was 51.77%, up 0.67 pct year on year; the sales/management/R&D expenses ratio was 15.14%/11.96%/20.85%, respectively, +1.55pct/+0.50pct/-1.30pct. The company increased sales promotion efforts and added a specialist product sales team, which led to a year-on-year increase in sales expenses; the company hired professional third party agencies to provide relevant consulting and legal services during the period of participation in the restructuring of AndeMedical Intelligence, resulting in an increase in management expenses.

Losses were drastically reduced year-on-year in 24Q1, showing multiple positive factors. The company disclosed its 2024 quarterly report. 24Q1 achieved revenue of 123 million yuan, an increase of 14.00% year on year; net profit to mother - 12 million yuan, same period of the previous year - 0.23 million yuan; net profit after deducting non-return to mother - 0.13 million yuan, compared to the same period last year - 024 million yuan; gross profit margin of 47.15%, an increase of 2.20 pct year on year. The company drastically reduced losses year-on-year in 24Q1, mainly due to ① an increase in business scale; ② a further increase in product maturity and a 2.2 percentage point increase in comprehensive gross margin; ③ 24Q1 had more application products in the development stage and an increase in capitalization; ④ cost reduction and efficiency, and a 9.32% year-on-year reduction in management expenses.

Continue to increase investment in R&D to enhance competitive advantage. The company's total R&D investment in 2023 accounted for 32.72% of revenue, an increase of 8.01 pct over the previous year, and the total R&D investment increased by 28.38% year on year. Among them, the share of capitalization was 36.28%, an increase of 25.91 pct over the previous year. The main reason is that the company's various application software product projects have successfully completed technical research and product design and entered the development stage. The company will accelerate the pace of research and development of fund-raising projects and increase investment in the field of artificial intelligence. It will focus on the research and development of intelligent diagnosis and treatment technology, specialist electronic medical records, and clinical specialty research products based on artificial intelligence and big data technology, focusing on national guidance policies such as promoting smart hospital construction, improving clinical specialist capacity building, and promoting high-quality development of public hospitals.

Explore the deep application of artificial intelligence technology in the medical field. In 2023, the company completed the development and training of the Jiahe Medical Big Model. Based on the Jiahe Medical Knowledge Map and medical field data such as massive medical books, encyclopedias, clinical paths, literature guidelines, clinical data, and doctor-patient dialogues, the total number of training tokens reached 14 billion. The Jiahe Medical Model can support nearly 20 types of medical tasks such as intelligent triage, intelligent pre-diagnosis, automatic generation of medical records, disease diagnosis prediction, diagnosis and treatment plan recommendation, and intelligent follow-up, making the entire diagnosis and treatment process intelligent before, during, and after diagnosis. The company participated in the bankruptcy and restructuring of Ande Medical Intelligence and completed business changes in April 2024, becoming the largest shareholder of Ande Medical Intelligence. The company is expected to integrate the advantages of Ande Medical Intelligence in medical artificial intelligence imaging and launch an AI-assisted diagnosis and treatment decision-making system combining text and images on the basis of electronic medical record systems and intelligent text application technology. Currently, the company has cooperated with Ander Medical Intelligence on the first aid platform product line.

Profit forecasting and investment advice. We believe that the company will continue to be deeply involved in the field of clinical informatization, increase technical product research and development efforts, enhance product competitive advantage, and prepare for future growth. As the country's policy on smart hospitals, electronic medical records application level ratings and connectivity is further deepened, the company's clinical-focused products and intelligent specialized electronic medical records are expected to usher in a broad market space. We expect the company's revenue for 2024-2026 to be 838/10.15/1,244 million yuan, up 20.6%/21.1%/22.5% year on year; net profit to mother will be 1.11/1.35/ 157 million yuan, up 160.4%/22.1%/16.5% year on year; EPS 0.80/0.97/1.14 yuan. Referring to comparable companies, combined with the competitive advantages of the company's leading electronic medical records companies, the company was given a dynamic PE of 35-40 times in 2024, with a reasonable value range of 28.00-32.00 yuan, maintaining a “superior to the market” rating.

Risk warning. Policy progress fell short of expectations, order demand fell short of expectations, and implementation of technology research and development fell short of expectations.