Profit growth in the first half of the year was impressive, and revenue achieved steady growth. 2024H1 achieved operating income of 10.545 billion yuan, an increase of 2.9% over the previous year, and achieved steady revenue growth in an environment with insufficient consumption; it achieved net profit of 2.05 billion yuan to mother, an increase of 19.7% over the previous year. The impressive performance of profit growth highlights the steady profitability of the company's business. It is expected that with the recovery of domestic consumption, demand for ophthalmology services will gradually pick up, and we are optimistic about the long-term development and resilience of the company's business. Among them, 24Q2 achieved revenue of 5.349 billion yuan, an increase of 2.3% year on year; net profit due to mother was 1.15 billion yuan, up 23.5% year on year; net profit after deducting non-return to mother was 1.13 billion yuan, up 16.5% year on year.

The number of outpatient clinics and surgeries continued to increase, driving year-on-year growth in various businesses. 24H1 achieved 7.9407 million outpatient visits, up 9.2% year on year; number of surgeries was 0.6499 million, up 6.9% year on year. By business, the revenue from the refractive project was 4.155 billion yuan (+3.2%), the revenue from the cataract project was 1.735 billion yuan (+3.6%), the revenue from the immediate project was 0.912 billion yuan (+4.8%), the revenue from the immediate stage project was 0.72 billion yuan (+5.1%), and the revenue from the optometry service project was 2.371 billion yuan (+3.1%). It is expected that the company's various businesses will maintain steady growth as the penetration rate of various ophthalmic surgeries increases and domestic demand for ophthalmology services is boosted. By region, China, Europe, Southeast Asia, and the US achieved revenue of 92.43/1.017/0.187/0.022 billion yuan, respectively, or +1.7%/+16.4%/+4.6%/-11.2%. The company relies on the “highland layout” strategy in key regions to expand overseas markets, and combines the domestic hierarchical chain development model to gradually form a strategic pattern for global collaborative development.

Expenses increased slightly, and profit margins remained stable. 24H1's sales expense ratio is 10.6% (+0.4pp), mainly due to increased scientific activities and personnel remuneration costs of newly acquired hospitals; management expenses ratio 13.5% (+0.6pp); R&D expenses ratio 1.4%; and financial expenses ratio 1.0% (+0.9pp), mainly due to fluctuations in exchange profit and loss. 24H1's gross margin was 49.4%, which was basically the same as the previous year, with a net margin of 20.9% (+2.1pp). 2024H1's net operating cash flow was 2.84 billion yuan (-15.6%). As of the end of June 2024, the company's book capital reached 5.46 billion yuan, and there are sufficient cash reserves for hospital renovation and market expansion.

Risk warning: The progress of mergers and acquisitions does not meet expectations, the risk of medical accidents, and increased risk of market competition.

Investment advice: The company is a leading company in the field of ophthalmology services in China. Through a hierarchical chain model, “endogenous+extension” jointly supports performance growth. Profit forecasts were lowered slightly to account for macro-environmental impacts. The estimated 2024-2026 revenue is 21.648/24.989/28.592 billion yuan (previously 23.281/26.903/30.813 billion yuan), a year-on-year growth rate of 6.3%/15.4%/14.4%; net profit to mother of 3.747/4.514/5.4 billion yuan (originally 4.063/4.89/5.848 billion yuan), with a year-on-year growth rate of 11.5%/20.5%/19.6%. The current stock price corresponds to PE = 23.7/19.7/16.5 times, maintaining the “superior to the market” rating.