Goldman Sachs: Kingmed’s third-quarter revenue misses expectations; profit beat driven mainly by impairment reversal

Why did third-quarter revenue miss expectations while profit exceeded them?

Kingmed’s third-quarter revenue was 1.518 billion yuan, down 1.5% year on year and below Goldman Sachs’ forecast of 1.757 billion yuan. Net profit was 183 million yuan, above Goldman Sachs’ forecast of 120 million yuan and sharply recovered year on year.
The profit beat came mainly from the reversal of previously recognized impairment on accounts receivable. Meanwhile, cost optimization and an improved business mix lifted gross margin in the first three quarters by 1.9 percentage points year on year to 36.7%.
Sample volume rose more than 2% year on year in the first three quarters, but revenue per sample continued to decline. Lower testing prices, weak demand for routine tests at primary-level hospitals, and the company’s voluntary exit from low-margin businesses together weighed on revenue.

Revenue from core specialized testing products grew 14.7% year on year in the third quarter, including growth of 52.1% in the affordable testing product portfolio. Management said total revenue returned to positive growth in the third quarter after excluding the high base created by one-off COVID-related revenue in the third quarter of last year.
Laboratory partnership revenue rose 8.9% year on year in the first three quarters, including 53% growth in revenue from precision diagnostic centers. During the same period, the company established 20 new precision diagnostic centers and signed 31 new county-level integrated healthcare consortium projects. Tertiary hospitals accounted for 55.3% of revenue.

Management plans to address pricing pressure by sharing costs with upstream suppliers, optimizing the product mix, strengthening customer discount management and improving laboratory operating efficiency. It also plans to drive growth through high-end specialized tests, precision diagnostic centers and county-level integrated healthcare consortium projects.
Management believes standardized testing fees could encourage hospitals to adopt innovative diagnostic tests and outsourced laboratory services, and promote industry consolidation. It expects the cycle of industry policy adjustments to gradually end in 2027, although some pricing pressure may persist.
Goldman Sachs believes supply-side consolidation can ease industry competition amid stricter compliance requirements and DRG and DIP reforms. Its assessment depends on greater outsourcing penetration and the company gaining share from industry consolidation; weak demand for high-end tests, pricing pressure from procurement policies and slower consolidation could all delay improvement.

Goldman Sachs lowered its 2026 revenue forecast by 7.8% to 5.902 billion yuan, but raised its net profit forecast by 16.0% to 471 million yuan. It lowered its 2027 revenue and net profit forecasts by 7.7% and 5.3%, respectively.
The bank lowered its 12-month target price from 36 yuan to 35 yuan and maintained its Buy rating. Goldman Sachs believes its adjusted margin metric shows that normalized profitability is stabilizing and approaching an inflection point; industry consolidation, margin recovery and the progress of accounts receivable collection are variables it is monitoring.