20200311-软库中华金融服务-德视佳-01846.HK-Stable_growth_with_certainty_initiate_with__Hold__rating_17页_957kb

Summary of EuroEyes (01846.HK)

Core Content

EuroEyes (01846.HK) is a professional brand in the vision correction industry, established in 1993 by Dr. Jørgensen. The company provides a range of surgical services, including refractive laser surgery, phakic lens (ICL) surgery, and lens exchange surgery, targeting patients with myopia, hyperopia, astigmatism, presbyopia, and cataract. The company is based in Hong Kong and operates clinics in Germany, China, and Denmark.

Investment Thesis

Market Potential in China

• China has a large population of myopia and presbyopia patients, with 579.5 million myopic individuals and 391.5 million presbyopic individuals in 2018.
• The penetration rate of vision correction surgeries in China is significantly lower than in Germany and Denmark, offering substantial growth opportunities.
• The Group believes that with increasing wealth and awareness, the penetration rate will rise, leading to higher growth potential.

Growth Strategy

• The Group plans to open 1–3 clinics annually in China, aiming to have 15 clinics operational within 3 years.
• The focus is on 1-tier and 2-tier cities, which are expected to drive future growth due to the high-value potential of their customers.

Competitive Advantages

• The Group offers a wide range of advanced surgical procedures, including ReLEx SMILE, FemtoLASIK, and ICL surgery.
• The company has experienced management with over 30 years of ophthalmological expertise, ensuring high-quality service and professionalism.
• The Group utilizes the latest surgical technologies and maintains a strong emphasis on customer consultation and follow-up care.

Key Information

Financial Highlights

• Target Price: HKD 8.01
• Current Price: HKD 7.38
• Market Cap: 2.4 billion HKD
• 12-Month Price Range: 7.21 – 15.18 HKD
• PE Ratios (2019/2020/2021): 75.0x / 54.6x / 40.9x

Clinic Operations

• The Group operates 9 clinics in Germany, 6 in China, and 3 in Denmark before listing.
• In 2018, the Group performed 15 surgeries per week, with 62.5% of revenue coming from Germany, 28.2% from China, and 9.3% from Denmark.
• The average cost per surgery varies depending on the procedure, with ReLEx SMILE, ICL, and Lens Exchange surgeries priced between EUR 1,500 – 3,500.

Service Procedures

• The Group's services are divided into four main stages: consultation, pre-examination, vision correction treatment, and follow-up.
• The conversion rate for consultations has been steadily increasing, reaching 57.0% in 2018 and 54.5% in the three months ended 31 Mar 2019.

Services Offered

• Refractive Laser Surgery: Includes ReLEx SMILE, FemtoLASIK, and PRK/LASEK.
• Phakic Lens (ICL) Surgery: Suitable for high myopia and other refractive errors, with a high ASP (Average Selling Price) of EUR 3,393 in 2019.
• Lens Exchange Surgery: Offers trifocal and monofocal lenses, with trifocal being more suitable for patients seeking freedom from glasses.

M&A and Expansion

• The Group is exploring M&A opportunities to expand its market share, especially in China.
• The company plans to open 10–15 clinics in China over the next 5–6 years, focusing on major cities.

Risk Factors

• Malpractice and Medical Negligence: High risk due to the nature of the services, which requires professional judgment and expertise.
• Slow Payback Period: Potential for longer payback due to market conditions and competition.
• Market Competition: The Group faces keen competition, especially from Aier (300015.SH), which has a significantly larger market share.
• Technology Adoption: The company may face challenges in keeping up with the latest surgical technologies.

Financial Performance

Revenue and Growth

• 2018 Revenue: EUR 43.0 million
• 2019 Revenue: EUR 49.2 million (14.4% YoY growth)
• 2020 Revenue: EUR 54.8 million (11.4% YoY growth)
• 2021 Revenue: EUR 70.6 million (28.9% YoY growth)

Profitability

• Gross Margin: Consistently around 40.5% (2019) to 40.2% (2021)
• Operating Margin: 19.0% (2018) to 20.5% (2021)
• Net Profit Margin: 10.0% (2018) to 10.5% (2021)
• Net Profit: EUR 4.3 million (2018), EUR 4.0 million (2019), EUR 5.6 million (2020), EUR 7.4 million (2021)

Cash Flow

• CFO (Cash Flow from Operations): EUR 17.5 million (2018), EUR 10.0 million (2019), EUR 8.5 million (2020), EUR 15.1 million (2021)
• Cash and Cash Equivalents: EUR 16.6 million (2018), EUR 87.7 million (2019), EUR 83.7 million (2020), EUR 84.1 million (2021)
• Net Borrowings: EUR -2.3 million (2018), EUR 0.2 million (2019), EUR -0.2 million (2020), EUR - (2021)

Conclusion

EuroEyes (01846.HK) is positioned to benefit from the growing demand for vision correction in China, where the market potential is significantly higher than in developed countries. The company has a solid growth strategy, experienced management, and a focus on high-quality services and customer care. However, the current valuation may not be justified under the current market conditions, leading to a "Hold" rating. The company's financials show stable growth, with strong cash flow and a good cash position, supporting its expansion plans. Despite the challenges, the long-term growth potential in China remains attractive.