1H24 revenue/adjusted net profit increased steadily, and 2H Consumer Ophthalmology or Power Company announced that it achieved 1H24 revenue/net profit/adjusted net profit of 0.734/0.134/0.145 billion yuan (+6.0/ -9.1/ +6.1% yoy). Disturbed by external environmental factors, the company's 1H24 revenue/adjusted profit all achieved resilient growth. The main reasons: 1) In the context of the low consumer ophthalmology season+high basic ophthalmology base, the number of outpatient/inpatients in the company increased by 7/9% year-on-year, and only the ASP in the inpatient business declined slightly (1H 24-6% yoy); 2) on the cost side, the company's gross margin fluctuated slightly due to the company's increased consumer ophthalmology promotion efforts (+1.2pct, year on year) However, 1H24 had no one-time profit or loss effect on associated companies As a result, adjusted net profit increased steadily. Looking ahead to 2024, considering the stabilization of basic ophthalmology and steady growth in the refract/optometry business, we are optimistic that the company's revenue will impact 10% yoy in 24 years. We expect the adjusted EPS for 2024-2026 to be $0.33/0.38/0.44, and give the company 13 times PE for 24 years (taking into account differences in liquidity, a 15 times discount compared to the company's 24-year average forecast), and obtain a target price of HK$4.66 to maintain the “purchase”.

Basic ophthalmology grew steadily under a high base, and the 2H peak season for consumer ophthalmology helped the company's 1H24 basic/consumer ophthalmology revenue of 0.357/0.376 billion yuan (+8/4% yoy), respectively. Looking ahead to 24, we are optimistic that basic ophthalmology revenue will stabilize, while the consumer ophthalmology business will gradually gain strength: 1) basic ophthalmology, considering the implementation of intraocular crystal collection prices and DRG/DIP policy advancement, we expect basic ophthalmology to maintain steady annual revenue; 2) Consumer ophthalmology: considering the increased abundance of services benefiting from the refractive business and the optometry business benefiting the company's ophthalmology screening and drainage, the superposition of the company will increase marketing efforts in new regions, and is optimistic that the consumer ophthalmology business will grow steadily in 24 years.

Existing hospitals are operating steadily, and the new hospital focuses on the development of consumer ophthalmology

The company's 1H24 hospital business revenue is about 0.69 billion yuan (+7% yoy, of which we estimate that the revenue of existing hospitals of the same caliber increased slightly year-on-year). Looking ahead to 24 years, we are optimistic about the company's double-digit revenue growth. Consider: 1) high-end cataract crystals and consumer ophthalmology business in mature hospitals may develop further; 2) the new hospitals (Tangshan, Zhoushan, etc.) will continue to grow in 2023. Among them, Hangzhou and Zhoushan hospitals may be expected to have a break-even balance for 24 years.

Mergers and acquisitions within and outside the province, and the hospital cluster strategy strengthens regional competitiveness

We are optimistic that the company will adhere to its “hospital cluster” strategy, focus on the encryption layout within Inner Mongolia Province, and gradually enter other markets outside the province: 1) considering the current industry environment to create a better merger and acquisition window period. The company may still have a merger and acquisition plan for 24 years, which is expected to focus on opportunities with strong consumer ophthalmology targets; 2) considering the company's hospital cluster strategy, we are optimistic or will continue to expand the layout in Inner Mongolia and the Yangtze River Delta.

Risk warning: Regional competition increases risk; risk associated with delayed expansion; risk of collecting high-value ophthalmology consumables.