Incident: The company announced its interim results. In the first half of 2024, it achieved total revenue of 0.734 billion yuan, an increase of 6.01% year on year; realized net profit of 0.136 billion yuan, down 9.40% year on year; gross margin was 45.76%, a decrease of 0.86 pct from the same period last year.

Both basic ophthalmology and consumer ophthalmology are growing. In the first half of 2024, the company's basic ophthalmology services achieved revenue of 0.357 billion yuan, an increase of 7.73% over the same period last year, an increase of 1.48 pcts over the same period last year. First, the number of elderly patients is large, income is stable, and demand for high-quality self-funded surgeries is strong. Second, the company procures advanced medical equipment and uses high-end medical devices and consumables to improve service quality and increase patient return visits. Consumer ophthalmology services achieved revenue of 0.376 billion yuan, an increase of 4.26% over the previous year. The company acquired and built a new hospital or optometry center. The gross margin was 48.61%, down 2.87 pct from the same period last year. The main reason was that the gross margin of new hospitals was lower during the development period, and the upgrading and renovation company's existing hospital expenses increased.

Reducing costs and increasing efficiency helps the company develop, and the cost ratio is relatively stable. The company's sales expense ratio and management expense ratio for the first half of 2024 were 8.58% and 14.50% respectively, up 1.18 pct and -1.47 pct respectively over the same period last year.

Among them, the increase in the sales expense ratio is mainly due to an increase in marketing and advertising costs for newly acquired hospitals and existing hospitals; the reduction in the management cost ratio is mainly due to a reduction in professional services and office expenses due to cost control.

The company did not add any new ophthalmology outlets in the first half of the year. As of the first half of 2024, the company operated 31 ophthalmology hospitals and 29 optometry centers, with no new ophthalmology outlets compared to last year. The company's ophthalmology network is centered around North China, spanning seven provinces, municipalities and autonomous regions. Among them, 12 hospitals and 13 optometry centers form a dense network of 12 hospitals and 13 optometry centers in Mengxi and nearby regions, forming a leading edge; it has 8 hospitals and 7 optometry centers in the Jiangsu and Zhejiang regions, and the business is expanding to East China.

Investment advice: The company's revenue is expected to be 1.481, 1.7, and 2.001 billion yuan in 2024-2026, up 8.14%, 14.79%, and 17.73% year over year; net profit to mother is 0.268, 0.312, and 0.369 billion yuan, up 17.21%, 16.16%, and 18.47% year over year; maintaining an “gain” rating.

Risk warning: macroeconomic policy risk, impact of weak consumption, risk of medical malpractice, risk of merger and acquisition expansion falling short of expectations, increased risk by industry competition, management of business risk