Broker: UOB Kay Hian
Date of Report: Friday, 25 July 2025

Aier Eye Hospital Group: Navigating Economic Headwinds with Strategic Growth and Operational Excellence

Overview of Aier Eye Hospital Group

Aier Eye Hospital Group (300015 CH), the world’s largest provider of ophthalmic medical services, continues to chart a growth trajectory despite encountering headwinds from a challenging economic environment. With a dominant market position and a resilient business model, Aier remains a compelling opportunity for investors seeking exposure to China’s healthcare sector and the global ophthalmology market.

Stock Snapshot and Shareholder Structure

• Current Share Price: RMB 13.36
• Target Price: RMB 16.70 (Down from previous RMB 17.80; 25% upside)
• Market Cap: RMB 124,587.3 million (USD 17,417.5 million)
• Shares Issued: 9,325.4 million
• Major Shareholders:
  • Mr. CHEN Bang: 43.0%
  • Mr. LI Li: 10.3%
• FY25 NAV/Share: RMB 2.47
• FY25 Net Cash/Share: RMB 0.60
• 52-week High/Low: RMB 19.09 / RMB 9.05

Financial Highlights and Performance

Recent Performance: Economic Headwinds Impact 2Q25

• Aier’s optometry and refractory businesses experienced slower growth in 2Q25 compared to the robust 16% year-on-year revenue growth in 1Q25.
• 2Q25 revenue growth is expected in the single digits year-on-year due to seasonal effects and weak macroeconomic conditions, particularly affecting high-end ophthalmology services.
• Despite market competition, the company maintained stable average prices for refractory services and achieved a 10 percentage point increase in the average price of optometry services by optimizing service offerings and adding value-added services.

Pricing Pressure and Policy-Driven Challenges

While prices for optometry and refractory services remain stable, basic ophthalmology services covered by social medical insurance are under pressure from Diagnosis-Related Group (DRG) and Diagnosis-Intervention Packet (DIP) payment reforms. These changes have led to price declines in core services like cataract treatments. Currently, social medical insurance revenue comprises 15-20% of Aier’s total, but ongoing optimization of the service structure is expected to help mitigate margin pressure.

Operational Efficiency, Strategic Expansion, and AI Integration

• Service Network: By the end of December 2024, Aier’s network encompassed 352 ophthalmic hospitals and 229 eye care clinics in China, reinforcing its position as the world’s largest ophthalmology hospital group.
• Overseas Expansion: The international arm is set for accelerated growth, highlighted by the 100% acquisition of the UK’s Optimax Group in July 2024 and continued organic expansion.
• Domestic Strategy: Aier has shifted to a more cautious expansion approach in China, focusing on nurturing smaller hospitals to profitability, given slower economic growth.
• AI and Specialties: Investments in artificial intelligence are poised to revolutionize service delivery. The company is also bolstering its specialties in refractive surgery, cataract, optometry, retinal diseases, cornea, and glaucoma, while expanding into orbital diseases, ocular oncology, neuro-ophthalmology, and pathology for full-lifecycle care.

Margin Outlook and Cost Controls

• Gross margin may remain under pressure as economic weakness prompts patients to seek lower-cost options.
• Aier is countering this with rigorous cost control, including streamlined management and operational upgrades across its hospital networks.
• Service upgrades and AI adoption are anticipated to drive further margin improvement in the coming years.

Revised Earnings Forecasts and Risk Factors

• 2025 revenue growth outlook revised down from 12% to 8.1% year-on-year, reflecting slower-than-expected expansion.
• Adjusted earnings are projected to grow at a 15.4% CAGR from 2024 to 2027, underpinned by gains in operating efficiency.
• Key risks include policy uncertainty, further economic slowdown, and potential challenges in both overseas and domestic expansion.

Valuation and Investment Recommendation

The report maintains a BUY rating on Aier Eye Hospital Group with a revised target price of RMB 16.70, derived from a DCF model with a WACC of 8.9% and a terminal growth rate of 4.5%. The target price reflects the expectation of slower revenue growth in 2025, but also accounts for anticipated operational improvements and the company’s strong long-term prospects.

Key Catalysts for Stock Performance

• Continued improvement in operational efficiency, boosting earnings growth potential.
• Effective execution of domestic and overseas expansion strategies.
• Further optimization of the service mix and integration of AI and advanced technologies.

Segmental and Regional Revenue (2024)

Aier’s segmental and regional revenue breakdown for 2024 reflects a diversified business with a broad geographic footprint and a balanced service portfolio, supporting its resilience and growth potential.

Comprehensive Financial Metrics

Conclusion: A Resilient Healthcare Leader with Long-Term Growth Prospects

Despite near-term macroeconomic challenges and regulatory headwinds, Aier Eye Hospital Group’s proactive strategies in cost control, service innovation, and global expansion position it as a resilient and dynamic leader in the global healthcare sector. Investors looking for exposure to China’s rapidly evolving healthcare market and the broader ophthalmology industry should keep a close watch on Aier’s continued transformation and growth.