Matters:

Recently, the company released its semi-annual report. 2024H1 achieved operating income of 10.545 billion yuan (+2.86%), net profit due to mother of 2.05 billion yuan (+19.71%), and net profit of 1.785 billion yuan (+1.48%) after deducting non-attributable net profit of 1.785 billion yuan (+1.48%). Among them, in the second quarter, the company achieved operating income of 5.349 billion yuan (+2.25%), net profit due to mother of 1.15 billion yuan (+23.53%), and net profit of 0.942 billion yuan (-6.42%) after deducting non-attributable net profit. The performance was in line with expectations.

Commentary:

Various businesses are growing steadily. By business, 2024H1's refractive revenue is 4.155 billion yuan (+3.16%), 2024H1's optometry revenue is 2.371 billion yuan (+3.05%), 2024H1's cataract revenue is 1.735 billion yuan (+3.64%), 2024H1's immediate revenue is 0.912 billion yuan (+4.81%), and 2024H1's immediate revenue is 0.72 billion yuan (+5.11%). 2024H1, the gross margins of the company's refraction, optometry, cataract, anterior and posterior ocular projects were 57.19% (-0.53pct), 55.95% (+0.71pct), 37.50% (+0.02pct), 40.58% (-0.28pct), and 30.68% (-0.11pct), respectively.

Expenses were well controlled for each period, and profitability remained at a high level. 2024Q2's sales expense ratio is 11.86% (+0.8pct). We expect this is mainly due to the corresponding increase in eye health science activities and health educator salaries brought about by newly incorporated hospitals in the first half of the year. The 2024Q2 company's management expense ratio is 13.59% (+0.96pct). We expect this is mainly due to the increase in personnel compensation and depreciation and amortization expenses brought about by the newly incorporated hospitals. In the second quarter of a single quarter, the company achieved an overall net interest rate of 23.11%, an increase of 3.34pct over the previous year, and steady profitability.

Investment advice: According to the company's interim report and operating conditions, we expect the company's revenue forecasts for 2024-2026 to be 25.259 billion, 30.414 billion, and 36.507 billion yuan, respectively, up 24.0%, 20.4%, and 20.0% year-on-year, and net profit to mother of 40.15, 49.65, and 6.090 billion yuan, up 19.5%, 23.7%, and 22.7% year-on-year. Referring to comparable companies and historical valuations, and combining the company's dominant position in the industry, we believe that the company should be given a certain valuation premium, giving the company 35 times the target PE for 24 years, corresponding to the target price of 15 yuan for 24 years. 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.