Producer: Sina Finance Listed Company Research Institute
Text/Summer Worm Studio
Core viewpoint: Aier Ophthalmology uses the capital leverage of the industrial fund to leverage the operating leverage of performance growth, but why does the company propose that the merger and acquisition model will gradually "withdraw from the historical stage"? Behind the single-digit growth rate of Aier Ophthalmology, does it mean that the growth effect driven by mergers and acquisitions is decreasing? When the M&A model is gradually withdrawn, is the future growth of the "eye science" accustomed to M&A-driven "eye science" predictable? Under the aggressive expansion, is it possible that the acquisition of high premium and high goodwill will backfire Aier Ophthalmology? What will be the solution to the problem of the withdrawal of industrial funds from the huge amount of underlying assets left in vitro?
With the closing of the first quarter of 24, the A-share ophthalmology track industry as a whole is under pressure.
In the first quarter of 2024, the median revenue growth rate of the ophthalmology industry was only 3.67%, and the median net profit growth rate fell sharply by 22.63%.
It should be pointed out that the ophthalmology industry as a whole will show a rapid growth trend in 2023, with a median revenue growth rate of more than 30% and a median net profit of more than 60%, and the performance of the first quarter report is obviously much inferior. A detailed study of the reasons shows that due to the impact of the epidemic in 22 years and the release of related demand in 23 years, there is a low base and high growth phenomenon in 23 years.
However, judging from the performance of the above four ophthalmology companies in the first quarter, they can be roughly divided into the following three categories: first, Aier Ophthalmology and Huaxia Ophthalmology, which have increased revenue and profits; second, Purui Ophthalmology, which does not increase profits; Third, He's Ophthalmology, whose revenue and net profit both fell. What kind of signals are reflected behind the "very different" data? Based on the above background, we have an in-depth review of the above four ophthalmology, and this article will focus on Aier Ophthalmology.
Two major doubts about "Ophthalmology".
In the process of in-depth review of Aier Ophthalmology, we found that there are two major doubts about today's "Ophthalmology":
First, the company's competitive landscape is dominant and its performance growth is good, why does the stock price deviate sharply from the fundamentals?
In the pattern of one super and many strong in the ophthalmology track, Aier Ophthalmology is undoubtedly the absolute leader. In 2023, Aier Ophthalmology's revenue will be 20.319 billion yuan, while Huaxia Ophthalmology, Preh Ophthalmology and He's Ophthalmology will total 7.888 billion yuan, which is less than 40% of Aier Ophthalmology. At the same time, Aier Ophthalmology's revenue once again hit a new high, breaking through the 20 billion mark. In 2023, the company will achieve operating income of 20.367 billion yuan, a year-on-year increase of 26.43%; net profit attributable to owners of the parent company was 3.359 billion yuan, a year-on-year increase of 33.07%.
However, the company's share price seems to be diverging from the fundamentals. Wind data shows that the company's stock price has continued to decline since its peak in 2021. As of the closing price on May 10, the company's share price was 12.83 yuan per share, down nearly 70% from the peak of the stock price.
来源：wind
Second, Aier Ophthalmology successfully leveraged the operating leverage of performance growth with the capital leverage of the industrial fund of "listed company + PE", but why did the company put forward the theory of "merger and acquisition model to withdraw from the historical stage"?
According to the July 2023 survey minutes, when investors asked the company whether it would further accelerate the pace of mergers and acquisitions, the company explained that the industrial M&A fund model explored and implemented since 2014 has allowed the company to achieve a significant first-mover advantage and reserve a large number of high-quality projects, but it is strategic, phased and transitional in nature. Now the volume of listed companies is getting bigger and bigger, the financial strength is gradually increasing, the carrying capacity continues to improve, the number of hospitals built by listed companies is gradually increasing, and the industrial fund will gradually withdraw from the historical stage after expiration.
It should be pointed out that driven by the merger and acquisition model, the performance of Aier Ophthalmology has maintained a growth rate of more than 20% all year round.
It is worth noting that since 2020, the company seems to have begun to frequently mention that the M&A model will gradually retire from the stage of history. According to the incomplete statistics of the announcement of investor relations activities, the number of mentions of the M&A model from the historical stage is as high as 6 times.
Source: Announcement
Diminishing marginal effect of M&A model? Changes between the revenue side and the cost side
Since 2014, the company has set up an industrial fund to accelerate the layout of outlets in the mode of "listed company + PE". Specifically, a partnership is established by core talents, and the company's M&A fund jointly participates in the new hospital, of which the M&A fund generally holds less than 20% of the shares, and after the new hospital reaches a certain level of profitability, Aier Ophthalmology will acquire the hospital equity held by the partner at a fair price by issuing shares, paying cash or a combination of the two. Aier Ophthalmology signed the "Trademark Name Licensing Agreement" and the "Management Consulting Services Agreement" with the M&A Fund, authorizing the eye hospitals acquired or established by Aier to use the designated trademark and the "Aier" brand name to engage in ophthalmic health care business, and signed the "Technical Consulting Service Contract" with the hospitals, under which the listed company will provide consulting opinions related to the operation and management of the ophthalmic hospitals under the fund (the hospitals licensed to use the trademark name are not subsidiaries of the Company) and charge service fees.
Under this model, we find that the growth rate of investment in the company's subsidiaries seems to show a positive correlation with the growth rate of revenue. According to the data, the company's revenue scale and subsidiaries have both increased, and the scale of investment in subsidiaries has increased from 4.5 billion yuan in 2019 to 15 billion yuan; During the same period, the company's revenue increased from 10 billion yuan to 20.4 billion yuan.
It is worth noting that the growth rate of the company's subsidiary investment scale and the growth rate of revenue roughly match, and it also seems to show a positive correlation. However, it should be pointed out that due to the disruption of macro factors such as force majeure such as the epidemic in 2020 and 2022, the investment intensity of the company's subsidiaries did not drive the corresponding revenue growth rate, and there was a certain deviation.
At the same time, we found that Aier Ophthalmology, as an industry leader, did not exceed the overall performance of the industry, and the growth rate rarely fell to single digits, with a revenue growth rate of only 3.5% in the first quarter of this year. It should be pointed out that the overall performance of the medical service sector in the first quarter was under pressure, and the adjusted listed medical service companies achieved a total operating income of 11.409 billion yuan, an increase of 2.07% year-on-year.
The above two sets of data performance may indicate that under special environmental factors, even if the company is supported by mergers and acquisitions, the incremental performance of relevant performance does not seem to be significant.
From 2019 to 2023, the company's outpatient volume will be 6,628,200, 7,548,700, 10,196,100, 11,251,200 and 15,106,400 respectively; The corresponding unit prices were 1,507 yuan/person, 1,578 yuan/person, 14.71 million yuan/person, 14.32 million yuan/person and 1,348 yuan/person. It can be seen that before 2020, the company belonged to the volume and price increase, and since 2020, there has been an increase but no price increase, and the customer unit price has continued to decline in recent years, and the customer unit price in 2023 will fall by 15% compared with the peak in 2020.
At the same time, we compare the investment amount of the company's new subsidiaries with the number of new medical institutions each year, and roughly calculate the amount of input cost of the company's unit medical institutions. According to the data, from 2020 to 2023, the company's unit medical institution input cost is roughly 29 million yuan to 46 million yuan, with an average value of about 38 million yuan (note, the investment in subsidiaries may include new companies, the above data is only an approximate calculation, not as an investment basis, and the specific data is subject to the company's disclosure caliber).
It should be pointed out that, according to the report of Guoyuan Securities, the investment cost of a single store in ophthalmology is roughly about 20 million yuan, which means that the company may need to re-examine whether the cost of the M&A fund to acquire hospitals is appropriate.
Source: Guoyuan Securities Research Report
The hidden corner of the M&A model: the source of tens of billions of funds and the exit pressure
With the support of the merger and acquisition model, the number of medical institutions of Aier Ophthalmology has expanded by more than 10 times.
In 2014, there were 71 hospitals under Aier Ophthalmology's brand hospitals and ophthalmology centers, including 54 under listed companies and 17 under industrial M&A funds.
By the end of 2023, there were 881 Aier Eye Hospitals, Eye Centers and Clinics worldwide. Among them, 750 in Chinese mainland, including 439 listed companies, 311 industrial M&A funds, 8 in Hong Kong, 1 in the United States, 108 in Europe and 14 in Southeast Asia.
At this scale, the company's future capital expenditure may be larger. Under the "listed company + PE" model, Aier Ophthalmology needs to merge its external assets into the listed company to complete the withdrawal of relevant funds. It should be pointed out that Aier participated in the establishment of these funds behind financial investors such as Ping An Asset Management, and the demand for relevant funds to withdraw is large. According to the 2023 annual report, the scale of funds for the company's listed companies to participate in the M&A fund reached 652 million yuan. It is reported that each M&A fund Aier Ophthalmology only contributes 10%-20% of the funds, so it is roughly estimated that the scale of its industrial M&A fund is about 3 billion to 6 billion yuan. If it is roughly estimated that the cost of a single merger is 30 million yuan, the company's future capital demand for incorporating in vitro assets will be around 10 billion yuan.
How will Aier Ophthalmology solve the funding needs of the above-mentioned large capital expenditures? Relying only on its own business hematopoietic capacity may obviously be insufficient, and the company's debt expansion may increase the company's financial risk; If the company has direct financing channels in the capital market such as private placement, the major shareholder will face the impact of factors such as equity dilution and rebalancing of equity market financing.
Despite the company's rapid expansion, Aier Ophthalmology's financial figures have been extremely impressive. This may be mainly due to the fact that with the support of the M&A model, on the one hand, the performance pressure of the loss-making target related to in vitro incubation is isolated from the outside of the body; On the other hand, the injection of high-quality assets into the body has further thickened the performance of listed companies. What is quite surprising is that the internal and external statements of Aier listed companies are very different, and it is necessary to be vigilant against the possible capital risks of this kind of weak mother and strong child.
According to public information, from 2019 to 2021, the asset-liability ratio of Aier Group was 91.18%, 63.63%, and 65.84% respectively, and the asset-liability ratio was high; The asset-liability ratio of Aier Ophthalmology is only about 30% to 40%. It should be pointed out that Aier Ophthalmology is the most high-quality asset of Aier Group, contributing nearly ninety percent of the profits to Aier Group from 2019 to 2021, but the headquarters of Aier Group has basically no hematopoietic capacity, and in recent years, cash from operating activities has continued to net outflow.
In addition, the statement of the parent company of Aier Ophthalmology shows that other receivables have risen sharply from 1.636 billion yuan in 2018 to 4.747 billion yuan in 2023. It is mainly related to related products, and its top five customers account for 80.73%.
Source: Announcement
Aftermath of M&A: Whether High Goodwill and High Premium Acquisitions Are Suspected of Benefit Conveyance Growth sustainability after the ebb of M&A
Under the aggressive expansion, Aier Ophthalmology has accumulated a huge amount of goodwill. As of the end of the first quarter, the company's net goodwill value was 6.564 billion yuan, accounting for more than 30% of the company's net assets.
With such a high level of goodwill, when the target of a high-premium merger and acquisition is impaired, the relevant impairment provision will have a greater impact on the company's performance. As of the end of 2023, the company's goodwill ending balance is 8.065 billion yuan, the current net value is 6.5 billion yuan, and the company's related goodwill impairment provision exceeds 1.5 billion yuan. It is worth noting that the company's asset impairment provisions for subsidiaries have shown a trend of increasing year by year.
In addition to goodwill issues, the company's high-premium acquisition has also attracted questions from regulators and investors about whether there is a suspicion of benefit transfer. According to public information, Shaoxing Aier only earned 315,300 yuan in the first 9 months of 2022, lost 881,000 yuan in 2021, and had net assets of only 1.48 million yuan, but Aier Ophthalmology acquired it for 57.27 million yuan, a premium of 55 times. In August 2021, Aier Ophthalmology planned to use 33.675 million yuan to acquire 75% of the equity of Heyuan Aier, which had net assets of only 89,500 yuan in the first half of 2021, with a premium of more than 500 times. The regulator has questioned whether there may be a transfer of benefits, which the company has denied.
In addition to goodwill issues, the brand risks associated with the company's aggressive expansion also seem to be non-negligible. By participating in the investment in industrial M&A funds, the company licenses the hospitals it invests and establishes to use the company's designated trademark and the "Aier" brand name to better meet the needs of ophthalmology patients around the world. Authorized to use the brand hospital as an independent legal person, not a subsidiary of a listed company, not controlled or managed by a listed company, and independently bear the debts or legal liabilities arising in the process of operation. Under this model, the company has brand risk and litigation and arbitration risk. Authorized use of brand hospitals may not be able to meet the company's proposed operating standards due to inadequate implementation, operational errors, improper understanding and other reasons, and in serious cases, risk events such as violations of laws and regulations, medical accidents and medical disputes may occur, affecting the company's overall brand image. At the same time, in the event of a dispute between a patient or other third party and such a hospital, there is a possibility that the other party may file a lawsuit and arbitration against the listed company as a co-defendant, resulting in the company being exposed to the risk of litigation and arbitration.
Aier Ophthalmology frequently has illegal advertising, excessive medical treatment, repeated charges, medical insurance violations, etc., which seems to be a mismatch with listed companies with a market value of 100 billion yuan. According to the Enterprise Early Warning Communication, the company has more than 270 administrative fines for foreign investment.
According to public information, on April 9, the official website of the Huanggang Municipal Government publicized the 2024 administrative punishment results of the medical security administrative law enforcement of the Huangzhou District Medical Security Bureau, which showed that Huanggang Aier Eye Hospital Co., Ltd. had a number of illegal behaviors such as excessive treatment, excessive standard charges, repeated charges, unreasonable charges, and excessive medical insurance limited conditions; Hong'an Aier Eye Hospital Co., Ltd., which was punished on April 1, violated Article 7 (1) of the Measures for the Administration of Medical Advertisements because the medical advertisements it published contained "medical technology, diagnosis and treatment methods, disease names, and thorough treatment"; In January, Shenzhen Guiyuan Aier Eye Clinic was fined and punished by the Shenzhen Luohu Market Supervision Bureau for "publishing advertisements in violation of regulations or conducting false and misleading publicity"; In 2021, Kunming Aier Eye Hospital induced the elderly to undergo cataract surgery to cheat insurance, etc.
Finally, it should be emphasized that the company's performance growth and the M&A model show a positive correlation trend, with the gradual withdrawal of the M&A model, can the company's endogenous growth support the future sustainable high growth? This may be worthy of great attention from investors.