1H23's performance met our expectations
The company announced 1H23 results: achieved revenue of 82.5 million yuan (YoY +121%) and net loss of 35.97 million yuan (narrowed 63% year on year), in line with our and market expectations.
Development trends
All business segments continue to develop steadily. Looking at each business segment, 1H23 Eagle Eye Health, and Eagle Eye Health achieved revenue of 29.8 million yuan (YoY +137%), 21.7 million yuan (YoY +26%), and 31 million yuan (YoY +307%), respectively. The rapid growth on the revenue side was mainly due to the company's continuous expansion of hospitals and primary care institutions, and exploring the strategic extension of products and services from inspection to post-examination services.
Gross profit levels have improved, and net losses have continued to narrow. 1H23 achieved a gross profit margin of 62.3%, an increase of 3.3 percentage points over the previous year. In addition to the overall scale effect driving an increase in operational efficiency, the proportion of third-party outsourcing among the company's hardware equipment procurement sources decreased, which also helped improve the overall gross profit level. During the 1H23 period, the company completed a total of 2.96 million tests through SaMD and health risk assessment solutions. The number of related service outlets increased to 3,331 (an increase of 650 over the previous year), and the average cost for a single test was about 20.87 yuan (YoY +9%). In addition, overall investment efficiency on the cost side has also improved. A combination of factors led to a net loss of 36.97 million yuan, a year-on-year narrowing of 63%.
Continue to promote the two-line layout inside and outside the hospital, and actively explore overseas business expansion. According to the announcement, as far as in-hospital sales are concerned, as of the end of 1H23, Beijing, Hebei, Shandong, Shanxi, Anhui, and Jiangsu have issued pricing guidelines for eye image analysis for a large number of people. AirDoc-aiFundus products can be charged separately within hospitals, and have covered 143 hospitals and 525 primary medical institutions. At the same time, the company is also increasing its expansion efforts in the out-of-hospital market, incorporating more commercial scenarios (such as retail pharmacies, insurance companies, optometry centers, government projects, etc.) into the scope of business. In addition, the company is also exploring overseas business. Currently, the company's products have obtained US FDA and European CE certification, and we expect the company to continue to contribute to overseas revenue in the future.
Profit forecasting and valuation
Keep the 2023 and 2024 earnings forecasts unchanged. The current stock price corresponds to the market sales rate of 4.7 times/2.5 times 2023/2024. We maintain an outperforming industry rating, but considering the recent market volatility as a whole, we lowered our target price by 19.5% to HK$14.00, corresponding to 6.4 times the 2023 market sales rate and 3.5 times the 2024 market sales rate. There is 44.9% upside from the current stock price.
risks
Competition in the industry has intensified, policy tightening has exceeded expectations, and business expansion into new cities has fallen short of expectations.