Matters:

The company released its 23 annual report and 24Q1 results. Revenue of 23 billion yuan (+57.50%), due to mother of 268 million yuan (+1202.56%), net of 198 million yuan (+967.07%), net of 7.28% (+6.21pct).

The 24Q1 company's revenue was 676 million yuan (+4.01%), deducted from mother 0.17 million yuan (-89.58%), deducted non-net interest rate of 2.82% (-8.17pct), deducted non-net profit margin of 2.82% (-8.17pct).

Commentary:

Along with the adjustment of the company's business focus, the company's share of cataracts increased dramatically, and the consumer business continued to grow. By business, the company's refractive revenue in '23 was 1,296 million yuan (+33.52%), cataract revenue was 593 million yuan (+137.96%), optometry revenue was 397 million yuan (+52.65%), and comprehensive eye disease revenue was 417 million yuan (+78.66%). The above four businesses accounted for 47.69%/21.84%/14.6%/15.33%, respectively. The company's cataract business showed impressive growth in 23 years, mainly because: 1) demand for cataract compression continued to be released after the national economic order returned to normal; 2) the company continued to promote the upgrading of high-end refractive cataract surgery; 3) the company introduced well-known cataract surgery experts, and the brand effect was gradually established.

The pressure on 24Q1 earnings was mainly due to the acceleration of investment expansion after the company went public. The company's gross profit margin in '23 was 44.00% (+2.33pct). By business, the gross margin for refractive, cataract, optometry, and comprehensive eye diseases was 51.58%/43.37%/51.45%/13.41%, compared to +1.11/12.52/6.70/0.14pct, respectively. Taken together, 24Q1's gross profit margin was 40.54% (-3.46pct), sales expenses ratio 16.37% (+1.37pct), management expenses ratio 15.05% (+3.26pct), net profit margin 2.82% (-8.17pct).

The company's mature, growth and start-up hospital echelon layout strategy are progressing steadily. By the end of 2023, the company had opened 27 hospitals specializing in ophthalmology. 1) Core self-built hospitals performed well. In '23, Kunming Purui/Wushi Purui/Lanzhou Purui achieved revenue of 2.90/1.86/154 million yuan respectively, an increase of 19.8%/82.2%/62.3% year-on-year.

2) Epitaxial mergers and acquisitions are beginning to bear fruit. In '23, Dongguan **** achieved revenue of 213 million yuan (+18.40%), net profit of 52 million yuan (+51.81%), and a net profit margin of 24.5% (+5.40pct), which became a solid foundation for the company to expand the South China region, especially the Guangdong-Hong Kong-Macao Greater Bay Area market (Guangzhou Yuexiu Puri, Shenzhen Nanshan Purui, Fuzhou Puri, Shenzhen Luohu Puri).

Optimistic about the company's long-term development and maintaining a “recommended” rating. Since the company is still in a period of rapid expansion, it is expected that it will still have to bear the costs of preparing and opening hospitals in the short term. In line with the company's latest quarterly report, we adjusted the company's 2024-2026 revenue to be 3.175 billion yuan, 37.12 billion yuan, and 4.268 billion yuan (pre-forecast values of 3,569 billion yuan and 4.399 billion yuan for 24 and 25 years), up 16.8%, 16.9%, and 15.0% year-on-year; net profit to mother was 2.05, 2.59 billion yuan, and 305 million yuan (pre-forecast values for 24-25) 312 million yuan and 401 million yuan), year-on-year growth rates of -23.6%, 26.7%, and 17.1%. Referring to comparable companies, and taking into account that the company is currently in the stage of releasing profits normally, we will give 2024 40 times PE, corresponding to a market value of 8.2 billion yuan, and a corresponding target price of 55 yuan. Maintain a “Recommended” rating.

Risk warning: the risk of a price war for refractive surgery, the risk of fluctuations in the net profit of newly built hospitals, the risk of public opinion due to medical accidents, etc.