Description of the event

The company released its three-quarter report for 2024. Revenue was steady, and gross margin was under pressure: revenue for the first three quarters of 2024 was about 16.3 billion yuan, up 1.58% year on year; net profit to mother was about 3.45 billion yuan, up 8.5% year on year; net profit after deducting non-return to mother was about 3.11 billion yuan, up 0.26% year on year. The company's gross profit margin, net profit margin, and net interest rate after deducting non-return to mother were 51.0%, 21.2%, and 19.1% respectively in the first three quarters, down 0.92 percentage points, up 1.35 percentage points, and down 0.25 percentage points, respectively. The 24Q3 gross profit margin, net profit margin, and net interest rate after deducting non-return to mother were 53.9%, 24.4%, and 23.1%, respectively, down 2.4 percentage points, 0.99 percentage points, and 0.15 percentage points from the previous year, respectively.

Core views

The number of surgeries is growing faster than revenue, and unit prices are under pressure: According to the interim report, in the first half of 2024, the company achieved 7.9407 million outpatient visits, an increase of 9.23%; the number of surgeries was 0.6499 million, an increase of 6.92%; the number of outpatients and surgeries grew faster than revenue, and unit prices declined year on year.

In the first half of 2024, the company's domestic and overseas revenue was about 9.243 billion yuan and 1.302 billion yuan respectively, up 1.70% and 11.95% year-on-year respectively. The overseas growth rate was significantly faster than domestic. Among them, revenue in Europe increased 16.41%, mainly due to the fact that in the first half of the year, the company acquired 100% of the shares of the British Optimax Group through European Clínica Baviera, and domestic industry growth was limited in stages. We believe that in the future, when the macro environment recovers, the company's domestic business will clearly benefit.

Further improve the county hospital network and continue to advance the internationalization strategy: in 2024, the county hospital network was further improved through the acquisition of 87 medical institutions; through the European Clínica Baviera, 100% of the shares of the British Optimax Group were acquired, thus entering the British ophthalmology market, and the internationalization strategy continued to advance. We believe that as the number of hospitals under the company continues to increase and the number of patients covered by them continues to increase, the advantages of hierarchical chains and internationalization will be further reflected in the future.

Investment advice

We believe that changes in the macro environment are the core factors currently under pressure on the company's business. As a leading private ophthalmology hospital, the company's operation is resilient and its performance is highly flexible; we expect the company's revenue from 2024 to 2026 to be about 21.14 billion yuan, 23.01 billion yuan, and 24.21 billion yuan, respectively, and net profit to mother of about 3.68 billion yuan, 3.96 billion yuan, and 4.33 billion yuan, respectively. The current corresponding PE valuation is about 35.8X, respectively , 33.3X, 30.4X, covered for the first time, and gave a “gain” rating.

Risk warning

Risk of consumption recovery falling short of expectations; risk of medical malpractice; risk of merger and acquisition of hospital integration falling short of expectations and impairment of goodwill; risk of loss of core talent.