CICC: Maintain CHAOJU EYE CARE outperform industry rating, target price HKD 3.9

According to the Zhitong Finance APP, China International Capital Corporation (CICC) released a research report stating that it maintains the forecasted EPS for CHAOJU EYE CARE (02219) at RMB 0.28 and RMB 0.30 for 2025 and 2026, respectively. The current stock price corresponds to a P/E of 9.9x for 2025 and 9.0x for 2026. It maintains an "outperform the industry" rating and a target price of HKD 3.90, corresponding to a P/E of 13.0x and 11.9x for 2025 and 2026, respectively, indicating a 30.0% upside potential compared to the latest closing price. CHAOJU EYE CARE announced its 1H25 performance, with revenue of RMB 698 million, a year-on-year decrease of 4.9%; net profit attributable to the parent company was RMB 114 million, a year-on-year decrease of 16.7%, mainly due to the impact of high-value consumables procurement on profits and adjustments in the prices of certain refractive surgeries; the performance was basically in line with the bank's expectations. CICC's main points are as follows: Outpatient, inpatient, and optical center volume decreased while prices increased, putting pressure on overall revenue in basic and consumer ophthalmology In 1H25, the company had 522,000 outpatient visits (a year-on-year decrease of 8.6%), 35,000 inpatient visits (a year-on-year decrease of 2.7%), and 49,000 visits to optical centers (a year-on-year decrease of 5.8%); among them, the average consumption for outpatient services increased by 4.3% year-on-year to RMB 797, and the average transaction value at optical centers increased by 12.7% year-on-year to RMB 978. Overall, the first half of the year showed a trend of decreasing volume and increasing prices. Driven by equipment upgrades, operational efficiency and conversion rates improved, leading to an increase in cataract surgeries. In terms of segment performance, the revenue from consumer ophthalmology services in 1H25 was RMB 359 million, a year-on-year decrease of 4.6%, accounting for 51.5% of total revenue; revenue from basic ophthalmology services was RMB 337 million, a year-on-year decrease of 5.6%, accounting for 48.3% of total revenue. Promotion of new refractive technologies to combat competition, cataract policies may see adjustments in the second half of the year In terms of refractive services: The group's four hospitals adopted new refractive techniques in the first half of the year, providing patients with differentiated pricing options, with a significant increase in the usage of new techniques and high market acceptance. The company plans to continue strengthening promotion in the second half of the year and expects a significant increase in the unit price of refractive surgeries for the entire year. In terms of cataracts: Currently, cataract surgeries are mostly charged according to DRGs/DIP under medical insurance, and adjustments in unit prices put significant pressure on operations. If there are subsequent optimizations in charging methods and standards, the bank believes it could benefit self-paying patients for lens or surgical upgrades, and also help gradually restore overall surgical volume. Operational indicators remain stable, with room for improvement in profitability In 1H25, the gross profit margin was 42.6%, a year-on-year decrease of 3.1 percentage points, and the net profit margin attributable to the parent company was 16.3%, a year-on-year decrease of 2.3 percentage points. The decline in gross profit was due to the price reduction of the all-laser 3.0 technique leading to a decrease in refractive unit prices, as well as the compression of profit margins due to high-value consumables procurement. The bank believes that with the promotion of high-end refractive techniques, the company's refractive surgery prices will increase in the second half of the year. The price pressures on refractive and cataract services were released in the first half of the year, which will support gross profit in the second half. In 1H25, the combined management and sales expense ratio was 21.6%, a year-on-year decrease of 1.5 percentage points, indicating an improvement in the company's cost control capabilities. Risk Warning: New hospital construction and acquisitions may not meet expectations; industry policy changes; unexpected medical events