Introduction to this report:

Consumer ophthalmology is recovering, cataracts and comprehensive eye diseases are growing rapidly, mature hospitals are growing steadily, newly opened hospitals have become a new endogenous growth engine, and profitability has increased due to scale effects. Maintain ratings to increase holdings.

Key points of investment:

Maintain ratings to increase holdings. Maintain the 2023-2025 EPS forecast of 1.68/1.85/2.61 yuan, maintain the target price of 130.08 yuan, corresponding to the 2023 PS 7.5X and PE 77X, and maintain the rating increase.

Performance was in line with expectations. In 2023, H1 achieved operating income of 1,378 million yuan (+54.88%), net profit of 235 million yuan (+358.07%), net profit of non-attributable income of 149 million yuan (+204.63%), Q2 achieved operating income of 728 million yuan (+72.85%), net profit of 72 million yuan (+420.38%), net profit of 77 million yuan (+563.47%), net profit of non-return mother of 77 million yuan (+563.47%). The performance was in line with expectations. Under the scale effect, gross margin increased by 1.50 pct to 45.38%, and net profit margin after deducting non-attributable income increased by 5.30 pct to 10.78%.

Consumer ophthalmology is recovering, and cataracts and comprehensive eye diseases are growing rapidly. Consumer medical programs such as refractive and optometry benefited from a recovery in overall consumption, with revenue growth of 709 million yuan (+33.37%) and optometry revenue of 191 million yuan (+52.87%). Demand for cataracts and underlying eye diseases was released after the epidemic, the company took the initiative to make up for shortcomings, and resumed rapid growth under a low base. Cataract revenue was 275 million yuan (+137.04%), and the proportion of multifunctional intraocular lenses and high-end procedures increased gross margin to 43.37% (+8.06pct). Comprehensive eye disease revenue was 197 million yuan (+70.71%).

Mature hospitals are growing steadily, and newly opened hospitals have become growth engines. Two hospitals in the same city, H1 Shanghai Fengxian Purui and Hubei Puri, opened clinics one after another, completed the acquisition of Dongguan **** Ophthalmology, and operated a total of 27 ophthalmology hospitals. Dongguan **** Ophthalmology also contributed 11.4% to revenue growth, and endogenous income increased 43.52% year-on-year. The total revenue of seven mature ophthalmology hospitals, including Kunming, Wushi, Hefei, Lanzhou, and Nanchang, increased by 24.6%, with a net interest rate of 18.3%. A number of new hospitals in Shenzhen, Guangzhou, etc. have completed site selection work and are in the process of being prepared. Hospitals newly opened in the past three years have become a new endogenous growth engine for the future.

Risk warning: The recovery in consumer health care fell short of expectations, and hospital expansion fell short of expectations.