Matters:
On April 25, the company released its 23 annual report and 24 quarterly report. In '23, the company's revenue was 4,013 billion yuan (+24.12%), net profit attributable to mother was 666 million yuan (+29.60%), and net profit of non-return to mother was 662 million yuan (+22.37%). 24Q1: The company's revenue was 978 million yuan (+5.09%), net profit attributable to mother was 156 million yuan (+3.75%), and net profit after deducting non-return to mother was 157 million yuan (+6.89%).
Commentary:
Dominant disciplines and dominant regions continue to lead growth. By the end of '23, the company had opened 57 specialist hospitals and 60 optometry centers in 47 cities, and the leading domestic ophthalmology chain group had a stable position.
By business, in 2023, the company achieved revenue of 9.87, 5.35, 12.07, 10.17, and 268 million yuan respectively, with year-on-year increases of 31.38%, 26.94%, 12.43%, 14.94% and 160.29%, respectively. Looking at the subregion, the company achieved revenue of 2,975 billion yuan (+25.73%) in East China in '23, accounting for 74.14%, and is still the region contributing to the company's core revenue.
The operation is steady, and profitability continues to be stable. The company's gross profit margin in '23 was 49.03% (+0.98pct), which remained stable; by business, gross margins for cataract, posterior eye, refraction, and optometry were 43.69%, 44.63%, 54.51%, and 50.06%, respectively, compared with +5.68, +3.60, -0.36, and -1.97pct, respectively. The gross margin for cataract and underlying eye disease projects increased significantly, mainly due to increased revenue and diluted fixed costs. The cost rate fluctuated slightly during the 23-year period, with a sales expense ratio of 13.28% (+0.84pct), mainly due to the increase in brand promotion activities as the company expanded in size. Looking at the first quarter, the 24Q1 company's gross profit margin was 48.97% (+0.80pct), net profit margin 16.85% (-0.1pct), and deducted non-net interest rate of 16.08% (+1.09pct). As revenue scale increased, the company's profitability continued to remain stable.
The implementation of an outward merger and acquisition is expected to boost full-year results. On April 25, the company announced that it intends to acquire 100% of the shares of Xiamen Huaxia Juxin No.1 Investment Consulting Co., Ltd., with a transaction consideration of 502.5 million yuan, with capital sources of 3125 million yuan and partial overfunding of 190 million yuan. After the transaction is completed, the company will directly or indirectly own hospitals and other companies such as Chengdu Aidi Eye Hospital (Top 3), Weishan Medical University Ophthalmology Hospital, Suining Fuxing Eye Hospital, etc. This transaction is the implementation of the company's “endogenous growth+epitaxial merger and acquisition” two-wheel drive development strategy. It helps integrate and absorb high-quality resources, deepen the company's layout and influence in the local regional market, improve the company's ophthalmology service network layout, and further enhance business performance.
Investment advice: We expect the company's net profit to be 881, 10.75, and 1,318 million yuan respectively for 24-26 (the 24-25 forecast was 8.92 billion yuan and 1,167 million yuan, respectively), up 32.4%, 21.9%, and 22.6% year-on-year. Taking the closing price on May 8, 2024 as a reference, the company's corresponding PE in 24-26 was 25, 21, and 17 times, respectively. Referring to comparable companies, and considering that the company has actively optimized its business structure in recent years, its profitability and resilience to risks have gradually improved, and that the company is in a critical period of national expansion, we gave the company a 30-fold valuation in 2024, corresponding to a target price of about 31.5 yuan, maintaining a “recommended” rating.
Risk warning: price war for refractive surgery, fluctuation in net profit of newly built hospitals, public opinion risk due to medical accidents, etc.