Core view: The company's revenue growth rate in '23 and 24Q1 continued to verify the pediatric boom, and the company's fundamentals diverged from the current stock price. I am optimistic that the company will raise its gross margin level through pediatric services, and will have good performance flexibility in the future.

First coverage, giving a “buy” rating. We expect the company's revenue for 24/25/26 to be 40.81/49.23/5.909 billion yuan, a growth rate of 15%/21%/20%, net profit to mother of 1.89/2.52/335 million yuan, and a growth rate of 17%/33%. Compatible with PE 15.2/11.4/8.6 x. Considering the popularity and scarcity of the company's healthcare business, it was covered for the first time and given a “buy” rating.

Dadongfang is one of the listed companies under the Junyao Group, focusing on the dual main business of “modern consumption+healthcare”. The three core businesses are: department store retail business with the Grand Oriental Mall in Wuxi as the core, the food and beverage business with the long-established brand “Sanfengqiao” in Wuxi as the core, and the healthcare business with pediatrics as the core. According to the 2013 financial report, in terms of revenue, the healthcare sector accounts for 74%; in terms of gross profit, department store retail contributed 47% of Dadongfang's total gross profit.

The department store retail sector and the Sanfengqiao sector remain stable, and the core growth point for the future is healthcare. The Grand Oriental Shopping Mall in Wuxi is located in the core business district of Wuxi. The long-established “Sanfengqiao” brand in Wuxi is well known locally, and the revenue and profits of the two sectors are relatively stable. The company's growing business is in healthcare. Through mergers and acquisitions in '21 and '22, the layout of two hospitals+three pediatric outpatient chain brands was formed. Currently, the company's medical business revenue is growing rapidly, increasing 17% year on year in '23 and 20% year on year in 24Q1.

The popularity of pediatrics may be underestimated due to a decline in the number of births. We believe that, like education, children's health is a core concern for the whole family. Pediatrics has expanded from traditional lifesaving to optional directions such as child health care and psychological counseling, and the penetration rate and customer unit price have continued to increase. The company's healthcare sector focuses on pediatrics, but currently, pharmaceuticals account for a relatively high share of revenue, and corresponding gross margin is low, and it is actively shifting to pediatric medical services. Compared to New Century Healthcare, the gross profit margin for pediatric services is over 40%. The gross margin of the Greater Oriental Healthcare Division was only 6.90% for 23 years, so there is huge space. We suggest that the core observation indicators are revenue growth rate and gross margin level. The 24Q1 medical sector's gross margin increased 0.45 pct year on year, and revenue increased 20% year over year. Prosperity continues to be verified.

Risk warning: Possible negative information risk for Junyao Group; risk of medical business development falling short of expectations; risk of turnover of core physicians; risk of fluctuations in the company's investment income; risk of impairment of accounts receivable, goodwill, etc.; risk of delays in the use of research reports or untimely updates.