CICC: Maintain outperform rating on GUSHENGTANG (02273) with a target price of HKD 45.8.

Zhongjin released a research report stating that it maintains the net profit forecast for GUSHENGTANG (02273) in 2025-2026 at 405-521 million RMB, with the current stock price corresponding to a P/E ratio of 14.8-11.3 times in 2025-2026. It maintains an "outperform industry" rating and a target price of 45.8 Hong Kong dollars, corresponding to a P/E ratio of 24.05-18.37 times in 2025-2026, with a 62.5% upside from the current price. The company announced its operating data for the third quarter of 2025: the number of patients in the third quarter was about 1.607 million, an 8.2% increase year-on-year. Key points from Zhongjin are as follows: 3Q25 maintained steady growth, and it is expected that the subsequent average customer spending will stabilize. The company announced an 8.2% year-on-year increase in patient visits in 3Q25, with the bank estimating that average customer spending will remain stable, albeit slightly affected by changes in some project medical insurance policies. However, it is expected that the pressure from the base will be cleared in the future, and the overall ASP will return to stability. In addition, taking into account the profit impact of some regional medical insurance quotas on the profit end in the same period last year, and this year's continued optimization of procurement costs and efficiency enhancement measures by the company, the bank predicts that the profit margin will continue to trend upward in the third quarter. Traditional Chinese medicine services embedded in Western medical clinics have landed; the "National Medicine AI Avatar" platform debuted in Singapore In October, the company reached a cooperation agreement with the comprehensive digital medical platform 1doc in Singapore to introduce traditional Chinese medicine services in Western medical clinics in Singapore. According to the agreement, the company will control 70% of the traditional Chinese medicine treatment area to achieve deep integration of Chinese and Western medicine. The company expects to replicate this controlling operating model in other Southeast Asian countries in the future and promote it globally. At the same time, the company is expected to strengthen outreach and acquisitions of self-operated stores in Singapore in the future. Regarding AI: The company's "National Medicine AI Avatar" debuted at GovWare2025 in Singapore, providing an experiential learning platform for local and global Chinese medicine doctors, laying the foundation for the company's next step to share famous Chinese medicine resources online and empower partners throughout the industry chain. Continuous share repurchases, dividends, and shareholder returns In the first three quarters of 2025, the company accumulated repurchases of 141 million shares and announced a mid-term dividend of 76 million RMB, totaling about 217 million RMB in repurchases and mid-term dividends, with a shareholder return rate of 3.2%. Taking into account the company's repurchasing announcement in August, the company expects the shareholder return rate to reach 5.2%. The company expects that if the annual dividends and mid-term dividends are consistent, the shareholder return rate corresponding to the "repurchase+dividend" for the full year of 2025 is expected to reach around 7%. Risk warning: Changes in medical insurance and Chinese herbal medicine policies; self-construction/acquisition falling short of expectations; impairment of goodwill.