1H24 results fall short of our expectations

The company announced 1H24 results: revenue of 93.71 million yuan (+13.6% YoY), net loss to mother of 80.5 million yuan. The loss increased 98.7% year-on-year, lower than our expectations, mainly due to weak performance in the Hawkeye Health sector, and significant financial asset impairment due to bad debts.

Development trends

The revenue side is under pressure, and the performance of the out-of-hospital market is slightly weak. Looking at 1H24's revenue by business segment, Eagle Hitomi Healthcare's revenue is about 36.5 million yuan (+22.1% YoY), Hawkeye Health's revenue is about 38 million yuan (+22.7% YoY), and Hawkeye Health's income is about 19.3 million yuan (about -11.1% YoY). The performance of the Hawkeye Health sector, which is a cooperative system between insurance companies and retail pharmacies, is slightly weak.

Accruing bad accounts receivable causes financial assets to depreciate, causing the loss side to expand. 1H24's gross profit margin was 57.4% (-4.9pct YoY), mainly due to changes in revenue structure. In addition, the company's financial assets depreciated by about 24.69 million yuan due to large amounts of bad debts due to accounts receivable during the 1H24 period, causing the loss end to expand.

Continue to lay out grassroots businesses. According to the announcement, during the 1H24 period, the company served a total of 2.96 million cases through SaMD and health risk assessment solutions, and the number of active sites reached 5950 (+78.6% YoY). For the core product, AirDoc-aifundus (1.0), it covered 244 hospital sites (+70.6% YoY), and the number of tests reached 0.125 million (+106.0% YoY); it covered 1,533 primary care institutions (+192.0% YoY), and the number of tests reached 0.409 million times (+324.6% YoY), and continued to lay out grass-roots businesses.

Profit forecasting and valuation

Considering the pressure on external market performance, we lowered our 24/25 revenue forecast from 0.35/0.54 billion yuan to 0.242/0.343 billion yuan. At the same time, taking into account impairment of financial assets and continuing expenses, we lowered our 24/25 profit forecast of about 5.81 million/21.09 million yuan to a loss of 92.73/23.6 million yuan. The current stock price corresponds to the 24/25 4.4x/3.0x market sales rate. Considering that the company is a leading AI imaging service provider in China, we have maintained an industry performance rating and temporarily lowered our target price by 34% to HK$13, which corresponds to a market sales rate of 5.0x/3.4x in 24/25, implying 15% upward space.

risks

Market demand falls short of expectations, liquidity risk, increased industry competition, and risk of bad debts.