Orient Securities released a research report stating that based on the 2025 interim report, the firm has raised its gross margin forecasts for GUSHENGTANG (02273) and adjusted the company's earnings per share projections for 2025-2027 to RMB 1.54, 1.88, and 2.30 respectively (compared to previous forecasts of RMB 1.53, 1.81, and 2.24 for 2025-2027). Based on the average valuation of comparable companies for 2025, the firm assigns a 27x price-to-earnings ratio for the current year, corresponding to a target price of HK$45.54 (calculated at a 1:0.9147 exchange rate), maintaining a "Buy" rating.

Orient Securities' main viewpoints are as follows:

**Key Events** In H1 2025, the company achieved revenue of RMB 1.49 billion, up 9.5% year-over-year, with net profit attributable to shareholders of RMB 150 million, up 41.9% year-over-year. Operating cash flow reached RMB 300 million, up 111% year-over-year, while free cash flow was RMB 210 million, up 466% year-over-year.

**Structural Optimization and Organic Growth, Continued Profitability Improvement** By business segment, H1 2025 healthcare solution services generated revenue of RMB 1.48 billion, up 10.4% year-over-year, while sales of health and wellness products contributed RMB 10 million in revenue.

By channel, H1 2025 offline clinic revenue reached RMB 1.37 billion, up 11.1% year-over-year. Same-store performance accounted for 97.3% of revenue, significantly higher than new stores and acquisition revenue (2.7%), indicating that the company's growth momentum primarily stems from operational deepening and efficiency improvements at existing stores. Additionally, H1 2025 saw the addition of 7 new clinics (4 self-built, 3 acquired) and expansion into 2 new cities.

The firm believes the company is implementing a strategy of "steady cash generation from existing stores and orderly expansion of new stores," avoiding merger and acquisition integration risks while ensuring high-quality earnings growth.

**In-House Formulations Experience Explosive Growth, Overseas Business Develops Rapidly** In H1 2025, revenue from the company's proprietary pricing products, including in-house formulations, surged 209% year-over-year, experiencing explosive growth. During the same period, 2 new in-house formulations were added, bringing the total number of registered in-house formulations to 14. Notably, the Hair Growth Granules successfully obtained certification from Singapore's Health Sciences Authority and launched in the market.

H1 2025 Singapore revenue reached RMB 2.143 million, up 121% year-over-year, demonstrating rapid overseas performance growth. Combined with the launch of Hair Growth Granules in Singapore, this marks the initial formation of a dual-wheel overseas business model of "services + products," potentially opening a second growth curve.

**Building Traffic Ecosystem Platform, Advancing AI Avatar Iterations** Currently, the company has established deep partnerships with mainstream platforms including Xiaohongshu, Meituan, Douyin, and Amap. New users acquired through multiple traffic platforms account for 7.6% of the group's total new offline users, with customer acquisition costs below industry averages, creating scalable effects from the traffic ecosystem layout.

Furthermore, based on the latest weekly data from late August, AI avatar prescription payment rates reached 76.7%, showing sequential improvement, with expert-reviewed prescription adoption exceeding 80%. The company now possesses over 20 million consultation records, 18 million case studies, and 100,000 high-quality expert data points.

Moving forward, the company will advance iterations of AI avatar-related functions and commercial application scenarios, with plans to open AI Traditional Chinese Medicine Avatar product features to young doctors in October.