Investment logic: The company is a leading private dental service provider in Zhejiang Province. Through the regional general hospital+branch hospital model, it has established a medical service network in Zhejiang and expanded outside the province. In the short term, the impact of the collection policy is gradually being digested, and the overall business growth rate is expected to accelerate, and the overall business growth rate will improve compared to the previous year; in the medium to long term, the dandelion branch will enter the harvest period after slowing down, and the scale of the branch and general hospital is expected to grow steadily, and the provincial market will sink and mergers and acquisitions outside the province will open up a long-term growth ceiling.

The dental circuit has broad prospects, and the market segment has great potential. The potential consumer base for dental diagnosis and treatment in China is large, the diagnosis rate is low. Aging and rising residents' income will drive the development of the industry. As the number of supply-side doctors increases and awareness of dental diagnosis and treatment increases, China's dental care service market is expected to grow to 383.7 billion yuan in 2028, with a compound growth rate of about 13% from 2024 to 2028. Among them, in terms of implant business, the penetration rate of dental implants in Korea is 29 pcs/10,000 people. Compared with South Korea's penetration rate of 500 units/10,000 people in 2019, there is still a lot of room for improvement. The implementation of the dental implant collection policy will drive the expansion of implants, and the company's implant volume will increase 47% year-on-year in 2023. In terms of orthodontics business, the number of orthodontists per 100,000 people in China is only 0.4, far less than the 3.3 in the US. As people pursue oral health and aesthetics, the orthodontic market is still expected to grow steadily. Projects such as comprehensive diagnosis and treatment are expected to continue to grow as the incidence rate and diagnosis rate increase, and the amount of implantation increases.

The “General Hospital+Branch” is linked to expand the dental market. By the end of 2023, the company had 84 medical institutions, 2,133 doctors, a medical service area of more than 250,000 **** meters, and 3,000 dental chairs. 1) In terms of general hospitals, the three major hospitals have strong word of mouth influence and outstanding professional ability, forming a service network and expert radiation network throughout the province. 2) Looking at the branch office, the “Dandelion Plan” accelerated the sinking of the provincial market from point to point, and the branch's profit cycle gradually shortened. As of 2024Q1, about half of the Dandelion branches that have opened have already been profitable. In the short term, investment in Dandelion Hospital has dragged down the company's profit growth rate; however, in the long run, the Dandelion Branch will meet the needs of local counties with sufficient reserves of human resources and dental chair resources, which will further increase the company's market share in the province. 3) In terms of layout outside the province, the company further explored the merger and acquisition franchise model, acquired shares in Loudi Stomatological Hospital in 2023, and will continue to improve the regional market layout in the future to form a regional scale effect.

Outstanding ability to receive medical treatment, and multi-dimensional protection of doctors' resources. The company has established and consolidated an excellent team of doctors in many ways to improve the efficiency of the doctor team: 1) Relying on well-known institutions at home and abroad, such as Zhejiang University and Hangzhou Medical College, and allocating doctors' resources at all levels; 2) Adopting a doctors' partner model, holding separate shares through the General Hospital Doctor Group and the local dandelion doctor team to ensure that doctors at the main hospital are deeply bound to high-quality branch doctors; 3) Introduce a special Case Manager (CM) team reception model to give full play to the respective advantages of experts and young doctors to improve the work efficiency of doctors at all levels; 4) comprehensively promote the “33” The “system” work model establishes three operating teams at all levels linked up and down at the group, regional general hospital, and branch levels to promote lean management and operation of oral hospitals.

Profit forecast and investment rating: We maintain an estimate of the total operating income of the company in 2024-2026 of 32.41/38.33/4.515 billion yuan, respectively, and the company's net profit to mother of 6.0/7.5/940 million yuan, respectively. The valuation corresponding to the current market value is 32/25/21 times, respectively. Maintain a “buy” rating.

Risk warning: Risk of dental implants falling short of expectations, risk of hospital expansion or integration falling short of expectations, risk of losing core doctors, increased risk of industry competition, etc.