According to a research report, CICC has maintained its adjusted net profit forecasts for GUSHENGTANG (02273) at RMB481 million and RMB602 million for 2025-26 respectively. At current share price levels, this corresponds to 16.7x and 12.7x P/E ratios for 2025-26 (based on adjusted net profit). The firm reiterates its "Outperform" rating with a target price of HK$52.8, representing 26.3x and 21.0x P/E for 2025-26 respectively, indicating 62.5% upside potential from current levels.

GUSHENGTANG announced its H1 2025 results, reporting revenue of RMB1.495 billion, up 9.5% year-on-year; adjusted net profit of RMB170 million, increasing 24.4% year-on-year; and adjusted net profit margin of 11.4%, up 0.6 percentage points year-on-year. The performance was largely in line with expectations.

**Organic Growth Drives Performance with Stable Pricing and Volume Expansion**

H1 2025 offline clinic revenue reached RMB1.37 billion, rising 11.1% year-on-year, primarily driven by same-store organic growth and acquisitions, contributing approximately 8.2% and 2.4% respectively. In terms of average transaction value, H1 2025 maintained stability at RMB544 per visit. Patient volume showed strong growth with 2.747 million outpatient visits, up 15.3% year-on-year, including 11.0% growth in new patients and 15.0% increase in returning patients.

**Dual-Engine Strategy for Overseas Expansion with AI National Medicine Avatars**

As of H1 2025, the company operated 83 offline clinics domestically and internationally, adding 7 new locations during the first half while maintaining prudent expansion amid changing industry conditions. For overseas operations, the company achieved rapid growth in Singapore through a combination of self-built flagship stores/smaller clinics plus joint ventures/acquisitions, generating revenue of RMB2.143 million in Singapore during H1 2025, up 121.2% year-on-year. Additionally, in August this year, the new hair care product Hufa Yifa Granules received approval from Singapore's Health Sciences Authority, enabling a "services + products" dual-engine overseas strategy. The company expects to expand into additional overseas markets in H2 2025.

On the AI front, the company officially launched ten "National Medicine AI Avatars" in August 2025, covering eight core Traditional Chinese Medicine specialty areas to replicate scarce expert resources and enhance user engagement. Currently achieving hundreds of weekly returning patient consultations, this initiative has improved patient retention rates. The company anticipates significant growth in AI platform revenue for full-year 2025.

**Continued Profitability Improvement with Healthy Cash Flow and Shareholder Returns**

H1 2025 gross margin reached approximately 30.6% (up 1.2 percentage points year-on-year), sales expense ratio was 11.8% (up 0.1 percentage points year-on-year), administrative expense ratio decreased to 6.3% (down 1.8 percentage points year-on-year), and adjusted net margin improved to 10.1% (up 2.3 percentage points year-on-year), demonstrating continuous profitability optimization. The analysis suggests that with ongoing performance growth at existing clinics and the maturation of newly built/acquired locations, profit margins are expected to improve further.

H1 2025 operating cash flow reached RMB300 million, surging 111% year-on-year, significantly outpacing revenue and profit growth. The company maintains ample cash reserves (RMB1.37 billion as of H1 2025 end), spent HK$84.68 million on share repurchases during the first half, and announced plans to repurchase up to HK$300 million worth of shares in the open market. Additionally, the company declared an interim dividend of RMB75.766 million, representing 50% of net profit, fulfilling its dividend commitment.