The total income in the first half of 2002 increased by 14% year-on-year to about 5.7 billion yuan, of which financial business increased by 3% and hospital revenue increased by 28%, mainly due to the consolidation of hospitals in state-owned enterprises.

We expect the company's 22-year net interest margin to fall by 16 basis points to 3.4%, mainly due to increased business competition, but financing costs have also fallen at the same time, so the net interest margin is expected to remain stable at about 4.0%.

We lowered the target price of the segment plus total valuation method to HK $10.3; we are optimistic about the company's ability in hospital mergers and acquisitions, an attractive dividend yield (forecast for FY23 of about 9%), and the performance of the first half of the year has been dragged down by the epidemic for 22 years.

Total revenue in the first half of 2002 grew 14.1 per cent year-on-year to about 5.7 billion yuan: of which the financial and consulting business grew 3 per cent year-on-year to about 3 billion yuan, in line with our expectations. The weak performance of the business sector is mainly due to the limited on-site adjustment caused by the epidemic. The net interest margin (NIS) narrowed to about 3.8 per cent (compared with about 4.4 per cent in the first half of 2001), mainly due to a decline in the average return on interest-bearing assets caused by increased competition, but this negative effect was also offset by a reduction in the average cost of interest-bearing liabilities caused by loose monetary policy. Hospital business revenue rose 28 per cent year-on-year to about 2.7 billion yuan, mainly due to the combined contribution of six Minmetals hospitals (about 2500 to 12800 beds added), but endogenous growth was disrupted by the epidemic (the number of hospitalizations / outpatients increased 0 per cent year-on-year). 6%). In the first half of 2002, the overall gross profit margin decreased to 41.7% (47.2% in the first half of 21 years), mainly as follows: 1) the net interest margin of financial business narrowed, resulting in a reduction of gross profit margin from 62% to 57%. 2) the gross profit margin of hospital business dropped from 11% to 10%, mainly due to the impact of consolidation and the epidemic. The sales management fee was reduced from 16.2% to 14.1%, mainly due to changes in income structure and travel restrictions.

The outlook for the financial business is slightly weak; the hospital business is steadily advancing. We expect the net interest margin to fall to about 3.4% in FY22 (about 3.56% in FY21), mainly due to increased competition in the industry. However, we expect the net interest margin to remain stable at 4 per cent as funding costs fall and capital efficiency increases. As a result, we estimate that the gross profit margin of the financial business in FY22 will remain at a high level of about 56% (compared to the range of 50-59% in FY17-21). With regard to hospital business, we expect that the consolidation of state-owned hospitals will continue to be the main driving force for future growth. (we expect that the consolidation of Minmetals Hospital will be completed in the fourth quarter of 2002, with about 1500 in the second half of the year. We expect the consolidated table to contribute 20-25% year-on-year income growth at the hospital end, but endogenous growth may still be under pressure due to the epidemic (22 years' revenue is expected to be the same as last year). As a result, we expect hospital-end revenue to grow by 23% year-on-year in fiscal 22. We estimate that the number of hospital beds in the company's hospitals is expected to reach about 14500 by the end of 22, and will be in a favorable position in the extension mergers and acquisitions of for-profit specialist hospitals.

The ability of mergers and acquisitions in the hospital sector has been proven and the dividend yield is attractive; to maintain the overweight rating, we have lowered our profit forecast for fiscal year 2022 by 2% to reflect the decline in net interest margin. The target price of the segment plus total valuation method has been reduced from HK $10.6 to HK $10.3. We continue to be optimistic about the company's prospects in the field of hospital mergers and acquisitions, based on 1) its excellent financing ability and 2) compared with smaller peers, the company's growing hospital network is more conducive to achieving synergies. We think the company's projected dividend yield of 9% for fiscal 23 is also attractive. Main risks: regulatory risk, epidemic situation, reimbursement risk and so on.