The company released its three-quarter report for 2024. The first three quarters achieved operating income of 0.476 billion yuan, a year-on-year decrease of 11.52%, and realized net profit to mother of 0.041 billion yuan, compared with a profit of 0.018 billion yuan for the same period last year. Among them, 24Q3 revenue was 0.175 billion yuan, down 28.68% year on year, and net profit to mother was 0.014 billion yuan, compared with profit of 0.041 billion yuan for the same period last year. The company changed from profit to loss in the first three quarters due, on the one hand, to a decline in revenue and rigidity in costs and expenses. On the other hand, due to the investment holding company Jiahe Heisen and the Institute of Biotechnology in the business start-up period, and the participating company Ander Medical Intelligence in the recovery period from bankruptcy and restructuring, there were losses in the short term. We are optimistic about the company's leading edge in the electronic medical records - data center - CDSS clinical informatization product line and maintain the purchase rating.

The Q3 three expense ratio increased in the short term due to the decline in revenue. The gross margin for the fourth quarter is expected to improve month-on-month, and the company's gross margin for the first three quarters of 2024 is 47.29%, a year-on-year decrease of 2.48pct. The sales/management/R&D rates are 14.97%/14.09%/24.51%, respectively, up 0.35/0.23/0.84pct year-on-year. The company's gross margin in 2024Q3 was 46.01%, down 8.81 pcts year on year, and sales/management/R&D rates were 12.54%/10.45%/23.07%, respectively, up 1.43/1.27/9.92 pcts year on year. We expect that as hospital customer operations resume, the company's product delivery will accelerate in the fourth quarter, and gross margin will improve month-on-month.

Jiahe CDSS leads the industry, and medical AI products continue to expand

The Clinical Assisted Decision System (CDSS) provides clinical decision support through human-computer interaction, and assists in completing clinical decisions through data, models, etc. In the long run, CDSS is an important application in the field of medical AI. Currently, Jiahe CDSS has been operating steadily at many top hospitals in the country, including Peking University Third Hospital, Peking University Cancer Hospital, and Guangzhou Medical University Second Affiliated Hospital. The model accuracy rate is over 95%, and it is in a leading position in the industry. In addition, Jiahe AI medical record quality control and clinical medical “AI assistants” have also been implemented in many large hospitals, gradually strengthening its competitive advantage in the medical AI field.

The company took a stake in Beijing Ande Medical Intelligence. The “text+image” AI capabilities opened up and strengthened competitiveness. The company participated in Beijing Ande Medical Intelligence at the end of last year, with a shareholding ratio of 22.5%. Ander Medical Intelligence focuses on the field of AI imaging in brain medicine, and is the first domestic company to obtain the three types of AI “image-assisted diagnosis” certification. This year, Ander released iStroke's intelligent imaging decision-making platform for acute stroke, which enabled the teneptase (TNK) intravenous thrombolysis time window to be extended from 4.5 hours to 24 hours, which aroused positive reactions in the industry. In the future, Jiahe Text AI+Ander Medical Intelligence's AI capabilities will be further deeply integrated to enhance product competitiveness.

Profit forecasting and valuation

Considering the weak market operating environment and lowering the profit forecast, we expect the company's net profit to be 0.082/0.137/0.203 billion yuan for 2024-2026 (previous value 0.111/0.181/0.266 billion yuan). Referring to the comparable company Wind, an average of 25PE is 27.3x. Considering the company's increased competitiveness in the medical AI field, we gave the company 40x 25PE, corresponding to a target price of 39.83 yuan (previous value of 28.45 yuan).

Risk warning: Medical informatization policies fall short of expectations; hospital revenue levels decline; industry competition intensifies.