Incident: On December 27, Riel Group released its mid-term report for the 2024 fiscal year, achieving revenue of 886 million yuan, an increase of 14.9% over the previous year. Net profit turned a loss into a profit of 6.234 million yuan, and reached 40 million yuan after adjustment.

The performance was in line with expectations, and the sales expense ratio increased slightly. On December 27, Riel Group released its mid-term report for the 2024 fiscal year, achieving revenue of 886 million yuan, an increase of 14.9% over the previous year. Net profit turned a loss into a profit of 6.234 million yuan, and reached 40 million yuan after adjustments. The management expense ratio was 14.2%, up 4 pp from the same period last year, the R&D expense ratio was 1.26%, down 0.04 pp from the same period last year, and the sales expense ratio was 7.9%, up 1.6 pp from the same period last year, due to continued market development.

The dual brand strategy positions different needs and continues to expand. As of September 30, 2023, the company had 123 stores across the country, including 113 clinics and 9 hospitals, distributed in 15 cities across the country. In FY2024, the company added 1 new clinic and 1 hospital, added 41 dental chairs, and expanded and upgraded 6 clinics. As of September 30, 2023, the number of dental chairs in the company was 1,530, an increase of 6.1% over March 31. It bucked the trend and expanded during the pandemic, preparing for subsequent performance growth.

The cash flow was sufficient to acquire Ruihua Dental to help the company expand nationwide. In FY2024, the company acquired 85% of Guangzhou Ruihua Dental's shares with a cash consideration of 17 million yuan to accelerate the national expansion process. As of September 30, 2023, several new projects are under construction. Furthermore, the company plans to expand using the M&A fund model. Currently, the M&A fund has been implemented, and the company's nationwide expansion process continues to accelerate.

Profit forecast and rating: The company's net profit for the 2024-2026 fiscal year is estimated to be 46.3, 91.4, and 111.3 million yuan, respectively, and EPS of 0.08, 0.16, and 0.19 yuan, respectively. Based on the industry average valuation, considering issues such as Hong Kong stock liquidity and market sentiment, the company was given 3 times PS for the 2024 fiscal year, with a corresponding market value of RMB 6.57 billion and a corresponding target price of RMB 11.29 (HK$12.32), maintaining a “buy” rating.

Risk warning: risk of worsening market competition; policy risk; risk of medical malpractice.