Key points of investment:
Announcement: Huaxia Ophthalmology Releases 2023 Annual Report and 2024 Quarterly Report? Revenue and profit increased steadily. In 2023, revenue of 4,013 billion yuan (+24.12%), gross profit margin of 49.03% (+0.98pp), net profit to mother of 666 million yuan (+29.60%), net profit of non-return to mother was 662 million yuan (+22.37%). Revenue for the first quarter of 2024 was 978 million yuan (+5.09%), gross profit margin of 48.97% (+0.80pp), net profit of 156 million yuan (+3.75%), net profit of non-return to mother was 157 million yuan (+6.89%).
With a “endogenous growth” strategy, the chain is laid out across the country, and the business volume continues to expand. The company has opened 57 ophthalmology specialty hospitals and 60 optometry centers in 47 cities in 18 provinces and municipalities across the country (37 more than the previous year). The number of outpatients was over 1.86 million (+21% year over year); the number of surgeries was over 370,000 (+23% year over year). The number of medical personnel was 2301 (+23% year over year), and the number of nursing and service personnel was 3,470 (+17% year over year).
Seek new growth points with the “epitaxial merger and acquisition” logic. In 2023, the company acquired a new ophthalmology company, Hefei Shining Eye Hospital Co., Ltd. Furthermore, on April 24, 2024, the company reviewed and approved the acquisition of 100% of Juxin No.1 Consulting's shares with a transaction consideration of 502.50 million yuan. Its total assets (including debts+equity) are valued at RMB 502.9848 million. The main assets include four hospitals including Chengdu Aidi Eye Hospital (top three), Weishan Medical University Ophthalmology Hospital, and Suining Fuxing Ophthalmology Hospital.
Demand has driven steady business growth, and the consumer ophthalmology business continues to improve. By business, the cataract project revenue was 987 million yuan (+31.38%), and the gross profit margin was 43.69% (+5.68pp). The immediate project revenue was $535 million (+26.94%), and the gross profit margin was 44.63% (+3.60pp). The revenue from the refractive project was 1,207 billion yuan (+12.43%), and the gross profit margin was 54.51% (-0.36pp). The total revenue of the Optometry Comprehensive Project was RMB 1,017 million (+14.94%), and the gross profit margin was 50.06% (-1.97pp). Other business revenue of 268 million yuan (+160.29%), gross profit margin of 48.96% (+4.31pp).
Diagnosis and treatment capabilities continue to improve, and academic and brand influence continues to grow. The company applied for 40 new patents and granted 39 new patents; published 103 new research articles (30 included in SCI), added 36 new approved medical research projects, carried out 11 new clinical trial projects and acted as PI, and added 15 new industry standards to participate in the formulation or revision. Its key laboratory for ocular surface and corneal diseases at the Xiamen Ophthalmology Center passed the inspection and was granted a license (the first provincial key laboratory in the field of ophthalmology in Fujian Province). In terms of talent introduction, the company brought in many well-known domestic ophthalmology experts, including Professor Zhu Siquan and Professor Zhang Xuedong, and further strengthened discipline construction and talent strength.
Actively introduce cutting-edge diagnosis and treatment technology and equipment to meet the needs of personalized diagnosis and treatment services. ① 3D visualization of ophthalmic surgery: China's first ZEISS 3D digital navigation surgical microscope and China's first Alcon eye surgery microscope were introduced; ② New treatment plan for dry eye: Alcon's first Airvision in the country? The Meibomian Photothermal Pulsation Complex Therapy Device was officially put into clinical use; ③ AI+ refractive surgery: Alcon's latest “full photoplastic” refractive surgery technology was introduced for the first time in the country. ④ Introduce and use a variety of world-leading artificial crystals.
Profit forecast and investment advice: We forecast that the company's 2024-2026 revenue will be 47.30, 5.701 billion yuan and 6.811 billion yuan, respectively, up 17.9%, 20.5%, and 19.5% year on year; net profit to mother will be 827, 10.28, and 1,253 billion yuan, respectively, up 24.2%, 24.3%, and 21.9% year on year. (1) PE valuation method: Referring to comparable company valuation levels, we give the company a 2024 PE ratio of 35-45 times, corresponding to a reasonable value range of 289.5-37.22 billion yuan for the company, corresponding to a reasonable value range of 34.46-44.30 yuan per share. (2) DCF valuation method: The WACC value is 10.13%. Considering the characteristics of medical inflation, the sustainable growth rate of 2.0% is reasonable. Based on sensitivity analysis, we estimate that the reasonable value range per share of Huaxia Ophthalmology is 39.91-44.47 yuan. 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 is 39.91-44.30 yuan per share, 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.