1H24 results are in line with market expectations

Aier Ophthalmology announced 1H24 results: 1H24's revenue was 10.55 billion yuan, up 2.68% year on year; net profit to mother was 2.05 billion yuan, up 19.71% year on year. The company's performance is in line with market expectations.

Development trends

1H24 revenue and profit growth was in line with expectations, and the European region performed well. 1H24's revenue was 10.55 billion yuan, up 2.68% year on year, and net profit to mother was 2.05 billion yuan, up 19.7% year on year. Net profit after deducting non-return to mother was 1.784 billion yuan, up 1.5% year on year (the difference between return of impairment losses from mergers and acquisitions funds was mainly due to the return of impairment losses from mergers and acquisitions funds), and the performance growth was in line with expectations. By business, 1H24 refractor/optometry/cataract business revenue was 4.15/2.37/1.74 billion yuan respectively, up 3.2%/3.1%/3.6% year on year. Businesses with strong optional attributes such as refraction and optometry slowed down due to consumer intent, but the company's growth rate was still higher than the industry average; demand in serious medical fields such as cataracts and eye diseases was strong, and the slowdown in growth was mainly affected by the reduction in the high base and medical insurance payment standards last year. By region, 1) mainland China achieved revenue of 9.24 billion yuan, up 1.7% year on year; 2) European region performed well, with revenue of 1.02 billion yuan, up 16.4% year on year; 3) Southeast Asia rapidly released revenue of 0.19 billion yuan, up 4.8% year on year. We believe that under the dual effects of the continuous expansion of overseas business and the recovery in domestic demand, the company's performance is expected to improve quarter by quarter.

The pace of mergers and acquisitions is accelerating, the medical network is gradually being improved, and service capacity continues to improve. As of 1H24, the company has 311 domestic hospitals, 202 outpatient departments, and 140 overseas ophthalmology centers and clinics. The company announced the acquisition of 52 and 35 hospitals in May and July 2024, and will contribute a significant increase in performance in the future. The scale of the company's 1H24 service increased rapidly, achieving 7.941 million outpatient visits, an increase of 9.2% over the previous year; the number of surgeries was about 0.65 million, an increase of 6.9% over the previous year. The company continues to optimize the service model to meet the differentiated needs of patients by extending outpatient hours and building smart hospital platforms, etc., and the level of satisfaction continues to increase, reaching 99.2%. We believe that the company will maintain the pace of expansion, continue to improve its medical service capabilities, and drive performance growth.

Operating indicators remain stable, and profitability continues to improve. 1H24's gross profit margin was 49.4%, which was basically the same; sales expenses ratio was 10.6%, up 0.4ppt year on year; management expenses ratio was 13.5%, up 0.6ppt year on year, which remained stable; net profit margin to mother was 19.4%, up 2.7 ppt year on year. We expect that as the company's brand influence continues to increase and market demand gradually picks up, the company's overall profitability will continue to improve in the future.

Profit forecasting and valuation

Considering the impact of current macroeconomic conditions and fluctuations in consumer intent, we lowered our 24-25 revenue forecast by 8.8% and 12.9% to 21.38 billion yuan and 23.6 billion yuan. The current stock price corresponds to 2024-25 23.1/19.2xP/E. Maintaining an outperforming industry rating, the target price was lowered by 18.4% to 16.0 yuan, corresponding to 37.0/30.9x P/E in 2024-25, with room for 60.6% increase compared to the present.

risks

The performance of newly built or acquired hospitals fell short of expectations; industry competition intensified; medical emergencies.