Performance has grown steadily, and revenue and profit have maintained a high growth rate. The company achieved revenue of 3.103 billion yuan in the first three quarters of 2023, up 22.98% year on year, net profit to mother of 557 million yuan, up 40.17% year on year, net profit after deducting non-return to mother of 572 million yuan, up 32.07% year on year, and net cash flow from operating activities of 725 million yuan, up 17.88% year on year. Revenue for the third quarter was 1.09 billion yuan, up 17.44% year on year. Net profit to mother was 203 million yuan, up 25.65% year on year, and net profit after deducting non-return to mother was 210 million yuan, up 18.70% year on year.

The scale of operation of hospitals and optometry clinics has expanded, and the profitability performance is impressive. The company's gross sales margin for the first three quarters was 50.62% (+2.60pp), net profit margin of 18.35% (+2.42pp), net profit margin after deduction of 18.45% (+1.27pp); gross sales margin for the third quarter was 51.19% (+2.15pp), and net sales margin of 18.41% (+0.97pp). Overall, profit margins increased significantly year over year. The sales expense ratio of 12.83% (+0.90pp) in the first three quarters was mainly due to the expansion of the operating scale of hospitals and optometry clinics, and the increase in expenses such as personnel remuneration and housing rental expenses, the management fee ratio 10.77% (+0.27pp), and the R&D cost rate 2.01% (+0.57pp), mainly due to the company's further increase in clinical research investment. The financial cost ratio of 0.51% (-0.53pp) was mainly due to the company's raised capital generating more interest income.

The balanced development of comprehensive ophthalmology and consumer ophthalmology has become a “twin engine” for performance growth. The immediate nature of eye disease diagnosis and treatment needs allows the company's business development to be guaranteed in different environments. In the future, the company will continue to invest in the eye disease diagnosis and treatment business, continuously improve its capabilities, and expand the scale effect. At the same time, the company will also pay attention to the development of consumer ophthalmology and invest sufficient resources. We believe that with the improvement of the economic environment and the introduction of new technology and equipment into clinical applications, etc., the growth rate of the company's consumption projects will gradually increase.

The logic of epitaxial mergers and acquisitions was gradually implemented, and the layout of the ophthalmology medical network was continuously expanded. In 2023, the company built and acquired more than 20 ophthalmic hospitals, providing a good reserve for the company's performance growth in the next few years. We expect the company to complete the layout of 24 provincial capitals in 2024, followed by prefecture-level cities. Every year in the future, the company will proceed according to the layout plan of 20-30 ophthalmology hospitals, focusing on cities with a relatively large population, strong economy and consumption capacity, and Huaxia, where Huaxia has a certain competitive advantage. The company and CLP Digital (Beijing) Private Equity Fund Management Co., Ltd. and other companies participated in the investment in the “Huaxia No.1” fund. The fund completed registration and filing in September, and acquired 51% of the shares of Sichuan Yuanju Aidi Eye Hospital Management Co., Ltd., which controls 4 hospitals including Chengdu Aidi Eye Hospital (Top 3).

Profit forecast and investment advice: We forecast that the company's revenue for 2023-2025 will be 41.24 billion yuan, 52.83 billion yuan, and 6.665 billion yuan, respectively, up 27.5%, 28.1%, and 26.2% year on year; net profit to mother will be 6.97 billion yuan, 8.94 billion yuan, and 11.56 billion yuan, respectively, up 36.2%, 28.3%, and 29.3% year on year. (1) PE valuation method: Referring to comparable company valuation levels, we give the company a 2024 PE multiplier of 40-50 times, corresponding to the company's reasonable value range of 357.7-44.72 billion yuan, corresponding to a reasonable value range of 42.59-53.23 yuan per share. (2) DCF valuation method: The WACC value is 8.87%. Considering the characteristics of medical inflation, the sustainable growth rate of 2.0% is reasonable. Based on sensitivity analysis, we estimate a reasonable value range of 48.85-55.94 yuan per share of Huaxia Ophthalmology. The two methods of comprehensive PE valuation and the DCF absolute valuation method intersect to evaluate the company. We believe that Huaxia Ophthalmology's reasonable value range per share is 48.85-53.23 yuan, which is superior to the market rating.

Risk warning: Some affiliated ophthalmology specialty hospitals are in a state of loss and may face the risk of continuing losses; risk of medical insurance fee control; risk of major medical disputes and accidents; risk of increased industry competition; risk of chain expansion falling short of expectations; and regulatory and policy risks.