Basic/consumer ophthalmology is growing strongly, and I am optimistic that the new hospital will continue to climb
The company announced that it achieved revenue/net profit/adjusted net profit of 13.7/2.2/220 million yuan in 2023 (up 38.3/20.5/ 19.8% year on year). After external environmental factors dissipated, demand for ophthalmology services recovered rapidly (+20/ 51% within a few years of the company's outpatient/inpatient visits, respectively); 2) Increased revenue from new hospitals (our estimates drive revenue growth of about 10% in 23 years).
However, the profit side growth rate was slightly lower than the revenue side. The main reasons were: 1) Other expenses confirmed some goodwill and asset impairment and public welfare expenses; 2) the company adjusted to the overall development strategy to increase investment in talent and early expansion/marketing of the new hospital.
Looking ahead to 2024, considering that basic ophthalmology remains steady and the refractor/optometry business continues to grow rapidly, we are optimistic that net profit will grow 18% year-on-year in 2012. We expect the adjusted EPS for 2024-2026 to be $0.39/0.46/0.55, and give the company 15 times PE for 24 years (considering differences in liquidity, 18 times discount compared to the company's 24-year average forecast), and obtain a target price of HK$6.43 to maintain the “purchase”.
Basic/consumer ophthalmology made concerted efforts in 23 years. I am optimistic that the foundation will remain steady+consumer ophthalmology will lead growth. The company's basic/consumer ophthalmology revenue in 2023 was 654/709 million yuan (+46/ 31% yoy) respectively, mainly due to a rapid recovery in ophthalmology-related demand after external environmental factors subsided. Looking ahead to 24, we are optimistic that basic ophthalmology revenue will remain stable and the consumer ophthalmology business will continue to gain strength: 1) basic ophthalmology, considering the implementation of artificial crystal collection prices and DRG/DIP policy advancement, we are optimistic that basic ophthalmology will remain stable at a higher base level in 23 years; 2) Consumer ophthalmology: consider the benefits of refractive services, and the optometry business will benefit the company's ophthalmology screening and drainage. We are optimistic that the consumer ophthalmology business will lead growth in 24 years.
The stock of hospitals recovered rapidly. The new hospital's focus on consumer ophthalmology continued to climb, and the company's hospital business revenue in 2023 was about 1.27 billion yuan (yoy +38%. Among them, we estimate that the revenue of the same caliber of hospitals in 23 increased 27% year on year, and the Tangshan hospital cluster acquired during the year and the Tangshan hospital cluster acquired at the end of '22 will increase the revenue growth rate by about 10% year-on-year). Looking ahead to 2024, we are optimistic about the company's double-digit revenue growth. Consider: 1) the further development of high-end cataract crystals and consumer ophthalmology businesses in mature hospitals; 2) the new hospitals (Tangshan, Zhoushan, etc.) will continue to grow in 2023. Among them, we are optimistic that the profit side of Hangzhou and Zhoushan hospitals will reach break-even in 24 years.
Mergers and acquisitions within and outside the province, and the hospital cluster strategy strengthens regional competitiveness
We are optimistic that the company will adhere to its “hospital cluster” strategy, while strengthening its layout outside Inner Mongolia Province while continuing to enter other markets outside the province (the company's share of revenue in Mongolia continued to decline in 23 years, and we estimate that the revenue contribution of Mongolian hospitals has dropped to about 70%): 1) Considering the current industry environment to create a better merger and acquisition window period, the company may still have a 24-year merger and acquisition plan, which is expected to focus on opportunities with strong consumer ophthalmology; 2) Considering the company's hospital cluster strategy, we are optimistic or will continue to expand its layout in the Yangtze River Delta and North China regions.
Risk warning: Regional competition increases risk; risk associated with delayed expansion; risk of collecting high-value ophthalmology consumables.