Due to the impact of the macroeconomic environment, revenue and profit declined year-on-year in the third quarter. 2024Q3 achieved operating income of 5.756 billion yuan, a year-on-year decrease of 0.68%; net profit to mother was 1.402 billion yuan, a year-on-year decrease of 4.56%; net profit after deducting non-return to mother was 1.328 billion yuan, a year-on-year decrease of 1.34%. The pressure on the results for the third quarter of the year was mainly affected by the poor consumption environment and the high base for the same period last year. In the first three quarters of 2024, the company achieved cumulative operating income of 16.302 billion yuan, up 1.58% year on year; net profit to mother of 3.452 billion yuan, up 8.50% year on year; net profit after deducting non-return to mother of 3.113 billion yuan, up 0.26% year on year. It is expected that with the gradual improvement of the consumer environment, the growth rate of refractive and optometry businesses will gradually recover, and we are optimistic about the company's long-term performance as a leading private ophthalmology company.

The medical service network continues to expand, and hospital acquisitions are progressing in an orderly manner. At the end of July 2024, the company announced that it had completed the acquisition of some shares in 35 hospitals including Humen Air and Yuncheng Air. The transaction was paid with its own funds, with a total amount of 0.898 billion yuan. This year, the company has completed the acquisition of some shares in 87 hospitals, and the medical service network has been continuously improved. The company's mature operation management system helped the merger and acquisition hospital achieve rapid profit growth. After the company acquired Clínica Baviera, the compounded annual net profit growth rate of more than 25% after the acquisition of the European ophthalmology chain; the 30 domestic ophthalmology hospitals acquired in 2020 still achieved a compound net profit growth rate of more than 28% during the pandemic.

The cost ratio level remained stable, and gross margin declined slightly. Sales expense ratio for the first three quarters of 2024 was 10.06% (+0.05pp); management expense ratio 13.65% (+0.66pp); financial expense ratio 0.86% (+0.46pp); R&D expense ratio 1.43% (-0.10pp). The gross profit margin for the first three quarters is 51.02% (-0.91pp), which is expected to be mainly due to a slight decrease in the share of revenue from high gross margin refractive and optometry businesses; the net interest rate to mother is 21.17% (+1.75pp), which mainly benefits from a significant year-on-year increase in investment income and income from disposal of transactional financial assets.

Investment advice: Consider macro-environmental impacts and lower profit forecasts. 2024-2026 operating income was lowered to 20.649/23.821/27.241 billion yuan (previously 22.638/26.158/29.958 billion yuan), a year-on-year growth rate of 1.4%/15.4%/14.4%; net profit to mother in 2024-2026 was reduced to 3.534/4.262/5.102 billion yuan (previously 3.954/4.763/5.699 billion yuan), a year-on-year growth rate of 5.2%/ 20.6%/19.7%, the current stock price corresponds to PE = 27.3/22.7/18.9 times. 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. Brand influence continues to grow, gradually building a perfect medical education and research system and talent training mechanism, exploring the application of cutting-edge technologies such as artificial intelligence in the field of eye health services. “Secondary entrepreneurship” is progressing steadily in the new decade, maintaining the “superior to the market” rating.

Risk warning: Consumption recovery falls short of expectations, risk of medical malpractice, and increased risk of market competition.