In the first three quarters of 2023, the company achieved operating income of 3.103 billion yuan (+22.98% year-on-year); realized net profit of 557 million yuan (+40.17% year-on-year); and realized net profit of 572 million yuan (+32.07% year-on-year). The company's performance was in line with our expectations. The company's profitability continued to improve. In the first three quarters of 2023, the company's gross margin was 50.62% (+2.59PCts year on year); net profit margin was 17.96% (+2.20 pcTS over year); net profit margin was 18.45% (+1.27 pcTS over year). The company has clarified the development model for the balanced development of “comprehensive eye diseases+consumer health care”, and the business continues to undergo high-end transformation. Industrial funds provide great support to the company in providing high-quality project reserves, and the endogenous+epitaxial two-wheel drive strategy is being actively promoted.

Performance is in line with our expectations, and profitability continues to improve. In the first three quarters of 2023, the company achieved operating income of 3.103 billion yuan (+22.98% year-on-year); realized net profit of 557 million yuan (+40.17% year-on-year); and realized net profit of 572 million yuan (+32.07% year-on-year). Looking at a single quarter, in 2023Q3, the company achieved revenue of 1,109 billion yuan (+17.44% YoY); realized net profit of 203 million yuan (+25.65% YoY); and realized net profit of 210 million yuan (+18.70% YoY). In the first three quarters of 2023, the company's sales expense ratio was 12.83% (y-o-y +0.9PCT); management expense ratio was 10.77% (y-o-y +0.27PCT); R&D expense ratio was 2.01% (y-o-y +0.57PCT); and financial expense ratio was 0.51% (y-0.52PCT). In terms of profitability, the company's profit margin level continued to rise. In the first three quarters of 2023, the company's gross margin was 50.62% (y-o-y +2.59pcTs); net profit margin was 17.96% (y-o-y +2.20pcTS); and net non-return interest rate was 18.45% (y-o-y +1.27pcTS).

“Comprehensive ophthalmology+consumer ophthalmology” is developing in a balanced manner, and the business continues to be high-end. According to the company's performance exchange conference call, the company clarified the development model for the balanced development of “comprehensive eye diseases+consumer care”. The diagnosis and treatment programs represented by cataracts and eye diseases are the company's long-term advantage. At the same time, the company continues to invest more resources to develop consumer ophthalmology programs. We judge that in the future, the company's comprehensive ophthalmology and consumer ophthalmology will achieve balanced development. The gross margin level of the company's various businesses is in the first tier of the industry, and the share of high-end products in each business is constantly increasing. We believe there is still room for improvement in the gross margin of each business in the future.

Industrial funds provide great support to the company in providing high-quality project reserves, and the endogenous+epitaxial two-wheel drive strategy is being actively promoted. According to the company's performance exchange conference call, in August 2023, the company strategically controlled Hefei Shining Ophthalmology. This move is an important addition to the company's consumer ophthalmology business. On September 26, 2023, the company issued an announcement on the progress of participating funds. The company and CLP Digital, Xihai Venture Capital, CITIC Trust, and Yuekang Investment jointly participated in investing in Huaxia 1. According to the partnership agreement, Huaxia 1 has acquired 51% of the shares of Sichuan Yuanju Eddy Eye Hospital Management Co., Ltd., which holds Chengdu Aidi Eye Hospital (Top 3), Enshi Huiyi Eye Hospital, Weishan Medical University Eye Hospital, and Suining Fuxing Eye Hospital. We believe that Huaxia One provides high-quality project reserves for the company's rapid development, which is expected to continue to drive the steady growth of the company's performance, and that the company's nationwide ophthalmology service network will also be improved at an accelerated pace.

Risk factors: risk of medical accidents; increased market competition; risk of loss of experts; risk of health insurance fee control exceeding expectations; risk that the company's business expansion falls short of expectations.

Profit forecast, valuation and rating: The company is a large national eye hospital chain group, and its brand influence continues to increase. We maintain the company's net profit forecast for 2023-25 at 678/8.79/1,138 million yuan, and maintain the 2023-25 EPS forecast at 0.81/1.05/1.35 yuan. Referring to a comparable company's valuation level of 54 times PE in 2023 (Aier Ophthalmology data is predicted by CITIC Securities Research Department, Puri Ophthalmology data is Wind's consistent forecast), considering the heavy snow on the long slope of the ophthalmology medical service circuit, the company has a strong level of academic research, outstanding diagnosis and treatment capabilities, and long-term growth potential. We gave the company 69 times PE in 2023, maintained a target price of 56 yuan, and maintained the company's “buy” rating.