The 2023 revenue performance was in line with our expectations, and the profit side performance was lower than our expectations. Venture Huikang announced its 2023 results: achieved revenue of 1,616 billion yuan, +6% year over year; net profit to mother was 37 million yuan, -14% year over year. Looking at a single quarter, the company achieved revenue of 459 million yuan in 4Q23, +18% year-on-year; net profit to mother - 55 million yuan, net profit not to mother - 51 million yuan, reducing losses year-on-year. The 2023 revenue performance was in line with our expectations. Profit performance fell short of our expectations due to the rigid expenses of adding 179 new employees, the high upfront delivery costs of the Hi-HIS project, and the impact of asset impairment preparation calculations of $169 million.
Development trends
Software sales resumed, Hi-HIS entered a large-scale promotion period, and increased orders supported future performance. By product, software sales revenue in '23 recovered significantly compared to -26% year-on-year in '22, achieving a 20% increase. Under the Huikang Cloud strategy, Hi-HIS signed 22 related orders in 23, and a total of 40+ hospitals purchased and implemented applications for all modules. The company signed 29 orders of 10 million yuan or more throughout the year, with a total amount of nearly 500 million yuan; the revenue amount corresponding to signed unfulfilled obligations was 1.47 billion yuan, supporting the 24-year performance; we expect the growth rate of new orders to be about 15-16% in '23. The optimization of the customer structure is expected to form a driving force for continuous development. The company's share of new customer revenue increased from about 30% in the past year to 37%. We believe that the increase in new customers reflects the increase in product customer acquisition capabilities, and we are optimistic about subsequent promotion progress.
Philips' strategic collaboration continues to deepen, and the outlook for 2024 is positive when medical AI research and development is implemented. In terms of AI layout, the company reached strategic agreements with the Zhejiang University Computer Innovation Technology Research Institute and the Zhejiang Smart Medical Innovation Center. Currently, the medical model has been successfully piloted in many of Zhejiang's top three hospitals and regions.
In terms of cooperation with Philips, the company has begun pre-sales work with Feiyuekang with a number of hospitals, and recently reached in-depth strategic cooperation with Philips in the field of “medical technology support” to promote product integration. In 2023, the healthcare information technology industry gradually rebounded amid “strong expectations, weak reality”. Based on public order information from the procurement network, we observed a trend where large orders in the industry were concentrated on leading manufacturers, and Venture Huikang outperformed the industry in public order performance from 2Q23 to 1Q24. On the demand side, there is still a gap between the application level of electronic medical record systems in hospitals across the country and the goals of the “14th Five-Year Plan”. In 2024, the industry still has expectations of “promoting construction through evaluation”, informatization requirements brought about by health insurance reform, and industry opportunities brought about by localization/AI/data elements. With steady order support, we believe that the company's 24-year performance recovery can be expected.
Profit forecasting and valuation
We lowered our 2024 revenue/profit forecast by 5.9% and 42.5% to $1,88,244, taking into account the long implementation cycle of major projects or the impact of the company's revenue recognition pace, compounding the impact of the rigidity of personnel costs and the pace of recovery in industry demand. For the first time, a revenue and profit forecast of $2,160/353 million was introduced for the year 2025. We lowered our target price by 45% to 5.5 yuan (based on 35 times the 2024 price-earnings ratio), which has 44% upside compared to the current stock price. The current share price corresponds to 24/17 times the 2024/2025 price-earnings ratio. Considering the company's steady order performance and the expected gradual restoration of subsequent performance, we maintain the company's outperforming industry rating.
risks
The promotion of Huikang Cloud 2.0 and Feiyuekang products fell short of expectations; the recovery in downstream demand fell short of expectations.