HAITONG INT'L: Maintains "outperform" rating on GUSHENGTANG (02273), with a target price of 43.3 Hong Kong dollars.

Haitong International released a research report stating that it is expected that GUSHENGTANG (02273) will have revenues of 3.74 billion yuan / 4.25 billion yuan in 2026/2027, a year-on-year increase of +15.1% / +13.6%. Adjusted net profits are expected to be 465 million yuan / 531 million yuan, a year-on-year increase of +15.4% / +14.2%. The bank believes that GUSHENGTANG, as a leading chain of traditional Chinese medical services in the country, has outstanding brand strength and digital technology advantages. Giving a 20 times PE for 2026 (based on adjusted net profit), the corresponding target price per share is HKD 43.3. The bank maintains an "outperform the market" rating and recommends attention. The main points of Haitong International are as follows: Stable revenue growth, outpatient volume increased by 11.0% year-on-year In 2025, the company achieved revenue of 3.25 billion yuan, with outpatient volume reaching 6.01 million visits, and ASP was approximately 541 yuan. 1) Offline medical institution revenue was 2.98 billion yuan; 2) Online platform revenue was 270 million yuan. By the end of the year, the company operated 101 traditional Chinese medical institutions (86 in China and 15 in Singapore), adding a net of 22 facilities during the year. The company's expansion strategy focusing on same-city densification and parallel expansion with Shenzhen New Land Tool Planning & Architectural Design is steadily progressing. In the first half of the year, in H2 of 2025, the company achieved revenue of 1.75 billion yuan (a year-on-year increase of +5.8%, a quarter-on-quarter increase of +17.3%). According to the performance meeting, the company's customer unit price stabilized on a quarter-on-quarter basis from the third quarter. Management expects that outpatient volume in Q1 of 2026 is expected to achieve double-digit year-on-year growth. Continuous optimization of cost rates, steady improvement in operational efficiency In 2025, the company's gross profit margin was 31.1% (+1.0pp), mainly benefiting from decreased rental costs and optimized herbal costs. Sales expense ratio was 11.5% (-0.7pp), and management expense ratio was 5.9% (-0.2pp). The company achieved a net profit of 3.52 billion yuan (+14.6%), an adjusted net profit of 4.03 billion yuan (+0.5%), and an adjusted net profit margin of 12.4% (-0.8pp). The bank believes that the slight decrease in profit margin is mainly due to the short-term impact of pre-investment costs for domestic and international expansion, and it is expected to further optimize as production capacity ramps up. The company had a total of approximately 1.08 billion yuan in cash and time deposits on hand at the end of the year, with operating cash flow increasing by +37% year-on-year and sufficient fund reserves. Accelerated implementation of overseas layout, preliminary commercialization of AI avatars 1) Overseas expansion: In 2025, Singapore's revenue increased by 228% year-on-year, reaching 10.306 million yuan. By the end of the year, there were 15 stores in Singapore; management plans to expand into the Hong Kong and Malaysia markets in 2026. 2) AI layout: Introduced 13 Traditional Chinese Medicine AI avatars covering 8 major traditional Chinese medical specialties, with monthly AI-related income exceeding 1 million yuan (according to performance meetings). The bank believes that the landing of overseas businesses and AI products is expected to drive the company's medium- to long-term growth. Risk Warning: Risks such as medical insurance, bulk procurement of Chinese herbal medicines, overseas expansion falling short of expectations, overseas medical policy risks, AI commercialization falling short of expectations, and consumer weakness putting pressure on customer unit prices.