Focusing On Presbyopia Treatments May Open New Markets But Faces Competition And Economic Uncertainties

Key Takeaways

• Strategic investments in new clinics and geographic diversification aim to drive revenue growth while mitigating regional economic risks.
  
• Expansion into lens-based treatments and potential M&A activities position EuroEyes for revenue and earnings enhancement through market growth and strategic partnerships.
  
• Economic challenges and increased competition are impacting revenue and margins, while strategic shifts to presbyopia treatment could raise costs and pressure profitability.

Catalysts

Provides vision correction services for the treatment of myopia, presbyopia, and cataract in Germany, Denmark, the United Kingdom, and the People’s Republic of China.

• EuroEyes is focusing on lens-based treatments like presbyopia, tapping into a growing market with expected CAGR in Europe and China of 7.5% and 9%, respectively. This is likely to boost future revenue and earnings.
  
• The company has invested in new clinics in key locations like Hong Kong, London, and Wiesbaden, expecting to reach breakeven by the end of 2024, which should contribute to revenue growth and improve net margins over time.
  
• With ongoing M&A discussions that aim to integrate lens-based treatments into existing clinics, EuroEyes is positioning itself for potential revenue expansion and earnings enhancement through strategic partnerships.
  
• The geographic diversification of revenue streams, with strong growth in Germany and the U.K., helps mitigate risks from economic downturns in single regions, supporting steady revenue growth and stabilizing net earnings.
  
• The anticipated recovery in consumer confidence and economic conditions may spur demand for elective surgeries, improving clinic utilization rates and boosting both revenue and net profit margins.

EuroEyes International Eye Clinic Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming EuroEyes International Eye Clinic's revenue will grow by 5.3% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 14.7% today to 12.8% in 3 years time.
• Analysts expect earnings to reach HK$110.3 million (and earnings per share of HK$0.32) by about February 2028, up from HK$107.9 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 19.7x on those 2028 earnings, up from 9.4x today. This future PE is greater than the current PE for the HK Healthcare industry at 12.1x.
• Analysts expect the number of shares outstanding to decline by 0.52% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.73%, as per the Simply Wall St company report.

EuroEyes International Eye Clinic Future Earnings Per Share Growth

Risks

• Declining consumer confidence and economic challenges globally have led to fewer high-end laser vision correction procedures, impacting revenue from this segment.
  
• The company's investments in new clinics have resulted in increased costs without immediate revenue returns, leading to a downturn in adjusted EBITDA and net profit.
  
• There is increased competition in certain markets, such as Denmark, where competitors have lowered prices, which could pressure net margins and maintain market share.
  
• Economic uncertainties, particularly in China and Europe, affect consumer confidence and spending, which could impact future revenue growth potential.
  
• While EuroEyes is focusing on presbyopia treatment, adjusting for the declining demand in laser surgery, this shift could result in higher raw material costs, impacting gross margins.

Valuation

• The analysts have a consensus price target of HK$5.8 for EuroEyes International Eye Clinic based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be HK$860.5 million, earnings will come to HK$110.3 million, and it would be trading on a PE ratio of 19.7x, assuming you use a discount rate of 5.7%.
  
• Given the current share price of HK$3.14, the analyst price target of HK$5.8 is 45.9% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.