The company released its three-quarter report for 2023. In the first three quarters of 2023, the company achieved operating income of 10.292 billion yuan, a year-on-year decrease of 34.15%; net profit of 531 million yuan, a year-on-year decrease of 78.13%; net profit after deduction of 482 million yuan, a year-on-year decrease of 80.01%. In 2023Q3, the company achieved operating income of 3.450 billion yuan, a year-on-year decrease of 29.25%; net profit of 78 million yuan, a year-on-year decrease of 85.84%; net profit after deducting non-return net profit of 150 million yuan, a year-on-year decrease of 71.88%. 2023Q3, the company's non-recurring profit and loss was -72.47 million yuan, of which the profit and loss on disposal of non-current assets was -105 million yuan.

The channel business grew steadily in 23Q3, and the ICL business and self-produced products declined month-on-month under short-term pressure. In the first three quarters of 2023, the company's diagnostic service revenue was 4,080 billion yuan, up 17.07% year on year, of which ICL service revenue was 3.711 billion yuan, up 21.16% year on year; channel product revenue was 6.221 billion yuan, up 6.07% year on year; and self-developed product revenue was 329 million yuan, up 30.56% year on year. 2023Q3, the company's ICL service revenue was 1,232 billion yuan, up 10.01% year on year; channel product revenue was 2.107 billion yuan, up 4.14% year on year; and revenue from self-developed products was 100 million yuan, up 9.89% year on year.

Credit impairment charges declined month-on-month, and net operating cash flow continued to improve. In the first three quarters of 2023, the company accrued a total of 353 million yuan in credit impairment. 2023Q1, Q2, and Q3 accounted for 117 million yuan, 135 million yuan and 101 million yuan respectively. Credit impairment charges declined month-on-month. As of September 30, 2023, the company had accounts receivable of $9.390 billion, a year-on-month decrease of $275 million. In 2023Q1, Q2 and Q3, the company's net operating cash flow was -229 million yuan, 257 million yuan and 339 million yuan respectively, which improved significantly from month to month.

Profit forecast and investment advice: We have adjusted our profit forecast. We expect the EPS for 2023-2025 to be 1.14, 1.76, and 2.20 yuan respectively, and the corresponding PE for the closing price on November 8, 2023 will be 21.4X, 13.9X, and 11.1X respectively, maintaining the “increase in holdings” rating.

Risk warning: increased competition in the industry; risk of credit impairment; industry policy changes exceeding expectations