Report summary
Company Overview
The company was founded by Dr. Lam Shun-chiu in Hong Kong in 2012. Currently, it has 4 clinics in Hong Kong and 1 ophthalmology hospital in Shenzhen. The main business includes eye care, diagnostics, drug treatment, and surgical treatment. Surgeries including cataracts, refractive correction, surface and fundus diseases, glaucoma, ophthalmic plastic surgery, strabismus and amblyopia can be performed.
The company's revenue for 2014-2016 was HK$156.5/198.9/248.7 million, CAGR 26.1%; net profit of HK$22.4/38.4/46.9 million, and CAGR 44.7%. Revenue/gross profit/net profit for 2017 H1 was HK$140.4/62.7/25.4 million respectively, up 21.8%/44.8%/23.2% year-on-year. Excluding listing expenses, net profit increased by about 52%. The increase in earnings mainly benefited from the increase in the number of surgeries and the number of ophthalmologists; the increase in gross margin mainly benefited from the level of fees and the improvement in operating efficiency.
Earnings for the first half of 2017 i) By region: Hong Kong and mainland China accounted for 62.8% and 37.2% respectively, up 19.4% and 26.3% respectively over the same period; ii) By type of service, surgery costs and other medical service fees accounted for 61.3% and 38.7% respectively, up 18.8% and 24.9% from the same period.
Status and prospects of the industry
Factors such as an aging population, rising incidence of eye diseases, and advances in eye surgery technology will drive demand for eye care services. According to Frost & Sullivan's forecasts, the Hong Kong private ophthalmology services market will reach 3455.3 million and HK$4844.1 million in 2016/2021, with a CAGR of 7.0%; the market size of China's private ophthalmology services market will reach 14.1 billion and 32.8 billion yuan in 2016/2021, with a CAGR of 18.4%.
Based on 2016 earnings, the company ranked second in the Hong Kong private ophthalmology service market, with a market share of 4.7%; the Shenzhen Eye Hospital ranked 3rd in the private ophthalmology service market in Guangdong Province, with a market share of 5.4%. The company plans to open a fifth satellite clinic in Kwun Tong, Hong Kong in the first quarter of 2018, and the second domestic ophthalmology hospital in Beijing is expected to start operating in January '18.
Advantages and opportunities
The international consultant team can help the company understand the latest ophthalmology-related technologies and developments;
Benefiting from the growth of China's middle and high-end private ophthalmology services market.
Weaknesses and risks
The business is highly dependent on Dr. Lin Shun-chao, and his departure or damage to his reputation will have an adverse effect;
Increased market competition has led to business expansion falling short of expectations.
valuations
The prospectus did not disclose performance forecasts. According to the 2017 H1 net profit estimate, if listing expenses of HK$26.8 million are included, the 2017 E price-earnings ratio is 64 -79 times; excluding the impact of listing expenses, the 2017 E price-earnings ratio is 33-41 times, which is comparable to the average of 35 times for medical service companies. The company plans to use 42% of the proceeds from the sale to potential acquisitions of 3 active eye hospitals in China and 40% to open 3 eye hospitals in China. Considering the rapid growth of the company's performance and the development of new businesses, we gave the IPO an exclusive rating of “6.”
