The income of ophthalmology in the mainland is growing steadily, the profits are reduced, the dental performance in the mainland is outstanding, and the "buy" rating is maintained.

The company released its annual results for 2023: 2023H1 achieved operating income of 950 million Hong Kong dollars (+ 7.8%). The revenue growth rate was mainly affected by the business of selling medical consumables. Excluding the exchange rate, the growth rate of ophthalmology income in the mainland was 25.7%, and that of oral income in the mainland was 271.5%. Net profit from homing is HK $30 million (+ 100.9%), EBITDA1.71 is HK $100 million (+ 18.6%), and net operating cash flow is HK $195 million (+ 96%). 2023H1's core ophthalmology business maintained good growth, the stock hospital significantly reduced losses, and the oral business grew faster than expected. We maintain the profit forecast for 2023-2025. It is estimated that the company's revenue for 2023-2025 will be HK $19.46 billion, respectively. The net profit of homing mother will be HK $0.59 million, and the EPS will be HK $0.15 per share. The current share price is 1.46 times 2.30 PS, maintaining a "buy" rating.

Mainland ophthalmology income grew steadily, both volume and price rose, profits reduced losses, mainland ophthalmology income increased by 17.5%, excluding the impact of exchange rate growth of 25.7%, to achieve steady growth. In terms of price, the number of eye operations in the mainland increased by 24.71% compared with the same period last year, and the average operation fee increased by 5.7% (in RMB). Considering that refraction accounts for nearly 50% of the mainland's ophthalmic income, we expect the company to maintain a stable price with its diagnosis and treatment technology as an advantage in the increasingly competitive refractive market. In addition, with the continuous introduction of overseas high-quality pharmaceutical equipment by "Hong Kong and Macao Pharmaceutical equipment", Fukuda Sima, Zhuhai Sima and Guangzhou Sima will continue to increase with the advantage of "Hong Kong and Macao Pharmaceutical equipment tong" qualification differentiation. In terms of profits, the gross profit margin of ophthalmology in the mainland has increased to 35.34%, and the net operating profit rate has also increased to-14.10%, indicating that the overall loss reduction is obvious. Three eye hospitals in Beijing, Kunming and Zhuhai began to enter the stage of becoming a regular EBITDA in the first half of 2023.

Dental income and profits in the mainland are all higher than expected.

2023H1 mainland dental income has increased significantly, excluding the impact of the exchange rate, the growth rate is 271.5%. It is estimated that the monthly income in June will reach HK $33.77 million, corresponding to an annual output of HK $1.74 million, which is a rapid increase. Considering that Q3 is the peak season of dental operation, we expect that Shenzhen Ai Kangjian's annual income in 2023 will exceed the 2019 level. In terms of profitability, the mainland dental gross profit margin increased to 36.88%, and the operating profit margin reached 17.71%, exceeding the net profit rate of 10.94% in 2019.

Risk hint: the growth of the new hospital is not as expected; the rate of expansion is not as fast as expected.