Key points of investment

Event: In the first half of 2024, the company achieved revenue of 10.545 billion yuan (+2.86%, same below) and net profit of 2.05 billion yuan (+19.71%) to mother. In Q2 alone, the company achieved revenue of 5.349 billion yuan (+2.25%) and net profit of 1.15 billion yuan (+23.53%) to mother. The performance was in line with expectations.

The refractive, optometry, and cataract business is growing steadily. 2024H1, the company's refractive business achieved revenue of 4.155 billion yuan (+3.16%), gross profit margin of 57.19% (-0.53pct); the company's optometry business achieved revenue of 2.371 billion yuan (+3.05%) and gross profit margin of 55.95% (+0.71pct); the company's cataract business achieved revenue of 1.735 billion yuan (+3.64%), gross profit margin 37.50% (+0.02pct); the company's other businesses achieved revenue of 0.622 billion yuan Yuan (-7.50%), gross profit margin 39.63% (-0.04pct). We believe that the growth of the company's various business segments shows strong resilience. In the future, as the penetration rate of refractive surgery and optometry products increases further, the company's consumer ophthalmology is expected to achieve steady growth.

There was a slight increase in the expense ratio, and the net interest rate decreased slightly after deduction. 2024H1, on the profit side, the company achieved a gross profit margin of 49.44% (-0.02pct); a net sales margin of 20.95% (+2.08pct), and a net profit margin of 16.92% (-0.24pct) after deduction. On the cost side, the company's sales expense ratio was 10.62% (+0.4pct), due to increased expenses such as eye health science activities and health educator salaries brought about by the newly incorporated hospitals; the management expenses ratio was 13.52% (+0.58pct), due to increased labor costs, depreciation and amortization expenses due to the new integration of hospitals; and 0.98% (+0.89pct) of financial expenses due to changes in exchange gains and losses.

55 new hospitals were added in the first half of the year, and the scale of the medical network continues to expand. As of 2024H1, the total number of hospitals under the company was 311, with 55 new ones added in the first half of the year. As the scale of the medical network continues to expand, the advantages and scale effects of hierarchical chains have been further reflected.

Profit forecast and investment rating: Considering the continued expansion of the company's grassroots and overseas markets, we adjusted the company's 2024-2026 net profit from 4.05/5.05/6.18 billion yuan to 4.04/4.88/5.75 billion yuan. The PE valuation corresponding to the current market value was 21/18/15 times, respectively, to maintain a “buy” rating.

Risk warning: Risk of hospital expansion or integration falling short of expectations, risk of uncertain industry policy changes.