After the "double halving", let's look at the reality of Aier Ophthalmology

Songuo Investment Research

2024-05-16 11:53Posted on the official account of Hunan Songuo Finance

The 30 yuan Aier Ophthalmology thought about it again and again, but did not buy it; The 20 yuan Aier Ophthalmology was slightly greedy and didn't buy it; Now the share price of Aier Ophthalmology has come to about 12 yuan, and at this time, I don't know whether to buy it or not.

This is actually a joke, since the stock price high in June 2021, Aier Ophthalmology has fallen all the way from 42.5 yuan (the former compound value) to about 12 yuan. However, the total number of shareholders has risen from about 270,000 in September 2021 to nearly 340,000 in March 2024.

(Source: Xueqiu)

"Eye Mao" is close to being cut in half, and there are still many followers. That said, there are still tens of thousands of investors who believe that Aier Ophthalmology is a good company with investment potential, and that it will eventually hope to return to a good price. So, is Aier Ophthalmology worth following? And why is it stagnant in the current situation?

It has long been a well-established fact that the secondary market performance of Aier Ophthalmology deviates from its business performance. In 2023, when the revenue exceeded 20 billion for the first time and the net profit attributable to the parent exceeded 3 billion for the first time, its stock price fell by 30% last year. However, even if the valuation is close to the lowest in a decade, the stock price is still in a reasonable range from the perspective of equity market capitalization performance and price-earnings ratio performance. Behind the contradictions, the reasons are deep.

M&A concerns: pull out the radish and bring out the mud

In terms of revenue, profit, and cash flow, Aier Ophthalmology's performance has always been very good, so good that there is no need to slap the numbers. The discussion about it mainly focuses on the M&A model and its derivative risks, which is the key point of disagreement.

At present, the goodwill/net assets ratio of Aier Ophthalmology is 33.35%, and the goodwill by the end of 2023 will reach 6.533 billion yuan, while the goodwill impairment provision is about 384 million yuan. Before the launch of the fund merger and acquisition model in 2014, the goodwill of Aier Ophthalmology was only 249 million yuan, reached 448 million yuan in 2015 and 2016, increased sharply to 2.122 billion yuan in 2017, and 2.062 billion yuan, 2.638 billion yuan, 3.878 billion yuan, 4.317 billion yuan, 5.458 billion yuan and 6.533 billion yuan respectively in the next few years.

In recent years, the compound growth rate of Aier Ophthalmology's goodwill has far exceeded the compound growth rate of revenue and net profit in the same period. But the increase in revenue and profit from mergers and acquisitions was immediate, and goodwill became a tolerable disadvantage. So in this case, when Aier Ophthalmology said last year that the mission of the M&A fund model has been completed and will slowly withdraw from the historical stage in the future, the situation is actually "strange":

As of the end of 2023, Aier Ophthalmology has 256 domestic hospitals, 183 outpatient departments, and 131 overseas ophthalmology centers and clinics. In addition, there are 311 institutions under the Industrial M&A Fund. If the potential of the institutional layout is estimated according to the number of cities, the current number of institutions of Aier Ophthalmology is far from reaching the ceiling. M&A funds, why should they be phased out at this time? Why did Aier Ophthalmology turn to self-construction?

This is the real problem of the "listed company + PE" model, it is obviously not the whim of Aier Ophthalmology, which decided to start rectifying the goodwill problem. Rather, in its strategy, the M&A model is no longer suitable for its own development. Starting from the logic of "Aier Ophthalmology participates in the industrial fund - the industry fund incubates the eye hospital - the hospital is merged into a listed company after making a profit", the problems focus on the following aspects.

(Source: Huaan Securities)

First, Aier Ophthalmology acquired profitable hospitals and isolated underperforming hospitals from the balance sheet, and the accumulated risks did not disappear. Even for hospitals that have completed acquisitions, the issue of premiums has been raised too many times. So frankly speaking, Aier Ophthalmology's profit growth is the result of human selection, and the price we can see is the amplification of cash flow pressure.

Second, the M&A fund model itself is leverage, and Aier Ophthalmology ultimately needs to be responsible for the capital that supports leverage. Some of the capital receives regular fixed income, but there are still assets that are underperforming, and Aier Ophthalmology needs to be prepared to deal with off-balance sheet assets. At the same time, Aier Ophthalmology needs capital expenditure in the process of acquisition.

As a result, the inflow of operating cash actually ends up serving the growth of scale, and it flows back through the investment channel. As a result, Aier Ophthalmology is still under great financial pressure in terms of net profit and operating cash flow performance, and internal funds cannot guarantee that off-balance sheet assets will be completely covered - unless assets are no longer loaded, which is the reason why it has stated that it has tightened the M&A fund model. But beware, even so, there are hundreds of institutions waiting to be liquidated off the balance sheet.

Third, following the above, since its own ability to obtain cash flow is not enough to support long-term demand, it will issue additional external issuance.

In the past few years, Aier Ophthalmology has carried out additional issuances in 2018, 2020 and 2022 respectively, and raised 3.511 billion yuan through the issuance of 133 million shares in 2022 alone. Although several additional issuances have made up for the funds needed for development, the negative impact also exists.

On the one hand, the share capital continues to increase, and the total share capital in the current market is 9.328 billion, which is not conducive to the growth of the stock price, and many investors hope that Aier Ophthalmology can be repurchased and cancelled; on the other hand, the additional issuance has significantly diluted the equity, and the actual controller is also the founder Chen Bang After the additional issuance in 2022, the equity in his hand has fallen below 50% for the first time. In this case, once it is necessary to cover other off-balance sheet assets in the future, it is not impossible to issue additional funds again, which may lead to further increase in management difficulty.

Therefore, there is a reason why M&A funds should withdraw from the historical stage, and Aier Ophthalmology has reached a new historical stage.

Go back to the core of the business

After years of mature layout and the implementation of the "1+8+N" strategy, in fact, high-quality M&A targets have also reached a critical point. In the remaining market space, hospitals and locations with layout value still exist, but they are not the kind of hospitals or regions that can make profits casually. At this time, what they need more is a quality business model. Compared with the acquisition of assets of average quality, self-built is the basis for controlling the quality of long-term development.

In doing so, there will be a loss of profits in the short term, but too much attention to this loss will ignore an expectation - with the brand effect, operating ability, and complementary strategy of hospitals in some regions, some new hospitals are not a drag on profits, but only share the resource value of Aier Ophthalmology Group in the short term.

In other words, at the moment when Aier Ophthalmology partially built a new hospital by itself, it either diverted the income of other Aier Ophthalmology in the region of 100 million yuan, or used the resources of Aier Ophthalmology to create a mature business model, and it may not necessarily play the role of "negative equity" for a long time. This kind of hospital, in fact, is part of the fruit of the business from the beginning, and Aier Ophthalmology also follows this logic, and gradually completes the switch from M&A growth to endogenous growth with as little loss as possible.

In order to make a better explanation of the mode switching, we can also start with a similar problem: we often think that Aier Ophthalmology is an asset-light operation, so we will feel uneasy when we see the problem of capital leverage. Aier Ophthalmology generates goodwill because of mergers and acquisitions, so how should goodwill be viewed here? Including investment in new hospitals, how should it be viewed?

To put it simply, when Aier Ophthalmology uses capital expenditure to acquire a hospital, the action actually includes the following: cash outflow; Acquisition of diversified assets of hospitals, including fixed assets, doctors, customer sources, regional market position and other factors; The net profit of the hospital was consolidated, and the net profit increased; Generate goodwill.

So, when it comes to the real evaluation, the intermediate costs need to be evaluated, but the hero can see through the value of the acquisition in terms of long-term results - whether the hospital is a source of long-term cash flow and whether it can generate more profits after the acquisition.

As a result, the key point was transferred to the operation of the hospital after Aier Ophthalmology became the owner. The same is true for self-built hospitals. The reason why 100 billion Aier Ophthalmology seems to be living so "twisted" is because it is still a period of growth, and there is no way to make money lying down, and we must strive for the future.

As a mature hospital in a specific area, or a newly opened hospital of Aier Ophthalmology, its performance growth comes from the following aspects: the increase in the number of patients, the increase in business items, and the increase in single-patient fees.

Under normal circumstances, it is impossible to significantly increase the single-patient fee, which is neither in line with the law of the industry nor conducive to the normal development of hospitals. In terms of business projects, since the ophthalmology project is relatively fixed, this growth is more due to the medical behavior of patients due to different problems. Therefore, in the end, these growth factors will be attributed to two aspects: whether the market has more demand for ophthalmic diagnosis and treatment, and whether Aier Ophthalmology can become the first choice for users' ophthalmology diagnosis and treatment.

The answer seems simpler, ophthalmology is a problem that cannot be ignored and difficult to delay. In the current social environment and residents' living habits, we can hardly see the possibility of reducing the overall ophthalmic problems. Although from a health perspective, this is not good news. But it would also be good if there was a good channel to help residents solve and prevent problems as much as possible.

In 2023, the annual outpatient volume of Aier Ophthalmology will exceed 15 million, a year-on-year increase of 34.26%; The number of surgeries exceeded 1.1 million, a year-on-year increase of 35.95%. In 2022, Aier Ophthalmology announced that it will invest 20 billion yuan in the next ten years to deepen support for the development of eye health public welfare undertakings and talent scientific research.

(Source: Aier Ophthalmology)

At this point, we can understand why Aier Ophthalmology emphasizes that it will continue to bring high-quality medical resources to more people, while at the same time diluting the leverage model that helps its rapid development and turning to self-sufficiency and self-construction. In fact, the reason has been explained by the founder before: what Aier Ophthalmology is going to do now is already the goal of a generation, and it is ready to be built in a generation.

In the short term, volatility will still exist, and the key is that the long-term trend will remain correct. The switch of the growth model will allow Aier Ophthalmology to further move towards sustainable operation. As for those specific issues in the strategic layout, in fact, when the private placement was made in 2022, the exchange had already used three rounds of inquiries that lasted a year and a half to make Aier Ophthalmology clear.

There is no white horse in the world that can always run fast, but the genes of the white horse are always the same. Today, Aier Ophthalmology has experienced a long and short game at the trough, which just shows that the market is gradually making choices in divergence. From south to north, travelers rub shoulders, and the people who accompany the growth of Aier Ophthalmology are in rotation.

Source: Songuo Finance

View original image 165K

• 

• 

•