Key takeaway

The company's 1Q26 results showed revenue in line with and profit exceeding our previously released preview report expectations. Looking ahead to 2026, the company is preparing for an H-share listing. Upon successful listing, its financial strength and international capital market influence will be further enhanced, driving the upgrade of the company's internationalization strategy. In terms of business growth, multiple positive factors will continue to be unleashed in 2026. First, the penetration rate of new refractive surgery procedures is expected to continue rising, driving overall revenue growth and gross margin recovery. Second, the marginal impact of DRG/DIP on the gross margin of businesses such as cataract and general eye diseases is diminishing. Third, new businesses such as presbyopia clinics and dry eye treatment continue to grow and are expected to become new engines for the company's future business growth.

Event

The company released its 2025 annual report and 2026 first quarter report

In 2025, the company achieved revenue of RMB22.353bn, up 6.53% YoY. Net profit attributable to shareholders of the parent company was RMB3.24bn, down 8.88% YoY. Recurring net profit attributable to shareholders of the parent company was RMB3.14bn, up 1.36% YoY. EPS was RMB0.35, down 8% YoY. The 2025 annual dividend plan is a cash dividend of RMB1 per 10 shares (tax inclusive), excluding the previously distributed interim dividend of RMB0.8 per 10 shares (tax inclusive).

In 1Q26, the company achieved revenue of RMB6.396bn, up 6.15% YoY. Net profit attributable to shareholders of the parent company was RMB1.181bn, up 12.64% YoY. Recurring net profit attributable to shareholders of the parent company was RMB1.176bn, up 10.92% YoY.

Risks:

1) Medical accident risk: In clinical medicine, due to the limitations of medical knowledge, individual patient differences, varying disease conditions, differences in physician skill, hospital condition constraints, and many other factors, various diagnostic and treatment procedures objectively carry varying degrees of risk, and medical accidents and errors cannot be completely avoided. The structure of the eyeball is delicate and its tissues are fragile. Moreover, the quality of ophthalmic surgery is affected by factors such as differences in physician skill, individual physical and psychological differences among patients, diagnostic and treatment equipment, and quality control levels. Therefore, ophthalmic medical institutions inevitably face certain medical risks. The occurrence of a medical accident could have a significant negative impact on the company's brand and operations.

2) Risk of insufficient human resource reserves: Ophthalmic medical services are a technology-intensive industry, and high-quality technical and management talent plays a very important role in the development of medical institutions. As the company's medical scale expands rapidly, its organizational structure and management system are becoming more complex, which places higher demands on the company's diagnostic and treatment standards, management and control capabilities, and service quality. The ability to attract, cultivate, and effectively utilize high-quality technical and management talent is a key factor affecting the company's future development. Although the company has already built a corresponding talent reserve for future development, if it fails to continuously attract sufficient technical and managerial talent and to continue innovating its talent development and incentive mechanisms, it will still face the risk of talent shortages during its growth.

3) Public relations crisis risk: A public relations crisis refers to a sudden, catastrophic incident or event that endangers a company's image, characterized by unexpectedness, intense scrutiny, destructiveness, and urgency. A public relations crisis can cause significant losses to a company, severely damage its image, and even push it into dire straits. In today's era of highly developed self-media and new media such as the internet, Weibo, and WeChat, certain individual incidents may be rapidly amplified or evolve into industry-wide events, and the company could become implicated or affected as a result.

4) Brand authorization risk and litigation and arbitration risk: By participating in investments in industry M&A funds, the company authorizes the hospitals invested in and established by such funds to use the company's designated trademarks and the "Aier" trade name, thereby better meeting the needs of ophthalmic patients across various regions. Hospitals authorized to use the brand are independent legal entities, not subsidiaries of the listed company, and are not controlled or managed by the listed company; they independently bear the debts or legal liabilities arising during their operations. Under this model, the company faces brand risk and litigation and arbitration risk. Hospitals authorized to use the brand may, due to inadequate execution, operational errors, or misunderstanding, fail to meet the operational standards set by the company. In severe cases, risk events such as regulatory violations, medical accidents, and medical disputes may occur, affecting the company's overall brand image.

5) Goodwill impairment risk: The company will generate a certain amount of goodwill assets during the investment and M&A process. According to the Accounting Standards for Business Enterprises, goodwill is subject to impairment testing at the end of each fiscal year. If the operating performance of the acquired target assets falls short of expectations, there is a risk of goodwill impairment, which would adversely affect the listed company's profits or losses.

6) Hospital operation risks: The daily operations of a hospital involve risks related to medical safety, medical quality, and the compliant use of medical insurance funds. Insufficient compliance controls may lead to compliance risks amid intensified medical anti-corruption efforts and unannounced medical insurance inspections.

7) Some of the above risks are unpredictable (such as medical policy risks or changes in a company's business plans), which may result in our profit forecasts falling short of expectations.