Essential healthcare demand shows resilience, discretionary services recovery delayed

Overview

Based on management discussions and channel checks in ophthalmology, dentistry, and TCM, the report becomes more cautious on 2Q26 results for China healthcare services companies. Residents are still prioritizing essential needs, leading to weaker-than-expected recovery in discretionary items such as refractive surgery, adult orthodontics, and wellness conditioning; more necessary services such as pediatric optometry, myopia management, TCM consultations, chronic disease management, and rehabilitation remain resilient. The report therefore lowers some revenue and earnings forecasts for covered companies, but believes compliant leaders can still benefit over the long term from physician resource mobility, industry clearing, and increased concentration.

Core views

The core determinant of short-term demand resilience is medical necessity. Aier Eye Hospital has brand, nationwide network, and scale advantages, but refractive demand has not yet shown a clear inflection point, so it is maintained at Neutral; Topchoice Medical’s lower-tier market, low-price products, and community promotion strategies have not yet brought significant incremental demand, and the ramp-up of its proprietary clear aligner brand Yinxiu is also slower than expected, so it is maintained at Neutral with a lower target price; Gushengtang’s core TCM consultation demand is solid, Singapore has validated the overseas replicability of its business model, and acquisitions in Malaysia and Hong Kong are expected to become new growth drivers, so it is maintained at Overweight and remains the sector top pick.

Analysis framework

The research combines management interviews, industry channel checks, volume-price breakdowns by business line, revisions to company earnings models, and DCF valuation. The analysis focuses on distinguishing essential from discretionary healthcare services and examines the impact of the consumption environment, regulatory reform, lower-tier market strategies, overseas acquisitions, and shareholder returns on revenue, profit, and valuation.

Methodology notes

• Fundamental researchManagement and channel checks

  Validate 2Q26 demand changes through company management and participants in the ophthalmology, dentistry, and TCM industries.

  Channel checks indicate that the June peak season for healthcare services was weak, with refractive surgery and adult orthodontics below expectations, while pediatric optometry and core TCM diagnosis and treatment remained resilient.

• Operating analysisVolume-price and demand structure breakdown

  Differentiate case volume, average spending per customer, and service mix to avoid judging real demand based solely on revenue.

  Orthodontic consumers shifted toward lower-priced products, making case volume better than revenue; refractive surgery migration toward upgraded procedures supported average spending per customer, making revenue performance better than actual surgery volume.

• Earnings forecastBusiness-segment forecast revisions

  Adjust FY26E and FY27E forecasts based on changes in demand, pricing, taxes and fees, acquisitions, and expenses.

  Aier Eye Hospital mainly adjusted refractive revenue and incorporated one-off back taxes and late-payment charges; Topchoice Medical lowered implant and orthodontic case volume; Gushengtang lowered domestic discretionary services but raised overseas business contribution.

• Valuation methodsDCF valuation

  Forecast free cash flow through 2033 and use the perpetual growth method to calculate target prices.

  Aier Eye Hospital uses a 10.9% WACC and 3.0% perpetual growth rate; Topchoice Medical uses an 11.5% WACC and 2.5% perpetual growth rate; Gushengtang uses an 11.5% WACC and 3.0% perpetual growth rate.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Aier Eye Hospital Group Co., Ltd. (300015.SZ)

  Covered ophthalmic medical services stock, rated Neutral, target price Rmb9.70.

  Strengths

  Leading brand, with more than 900 hospitals and clinics, a nationwide network forming scale economies, and strong physician retention capability; demand for cataract and eye disease treatment is relatively stable.

  Weaknesses

  Discretionary items such as refractive surgery are affected by weak consumption, FY26E revenue and profit forecasts were lowered, and back taxes and late-payment charges weigh on near-term earnings.

  Comparison

  Compared with Gushengtang, its demand structure is more dependent on discretionary consumption; compared with Topchoice Medical, its brand and nationwide network advantages are more prominent.

  Risks

  Goodwill impairment, ophthalmology pricing regulation, medical disputes, network expansion execution below expectations, and intensified local competition.

• Topchoice Medical Investment Co. (600763.SS)

  Covered dental medical services stock, rated Neutral, target price lowered from Rmb42.00 to Rmb38.00.

  Strengths

  One of China’s leading dental chains, with more than 90 medical institutions and about 3,100 dental chairs as of 3Q25; share repurchases may provide some technical support.

  Weaknesses

  Adult orthodontic and implant demand is weak, lower-tier market and low-price promotion have not brought significant incremental demand, and the proprietary clear aligner brand Yinxiu is ramping up more slowly than expected.

  Comparison

  Among the three companies, it faces the most prominent pressure from short-term strategy execution and price competition, and its target price cut is also the largest.

  Risks

  Slow recruitment of promotion personnel, failure of low-price strategy, insufficient case volume ramp-up in lower-tier cities, and margin pressure on high-end products.

• Gushengtang Holdings Ltd (2273.HK)

  Covered TCM medical services stock and sector top pick, rated Overweight, target price HK$40.00.

  Strengths

  Core TCM consultations have essential-demand attributes, with more than 100 domestic and overseas clinics and 5.6mn patient visits completed in FY25; Singapore validates overseas replication capability, acquisitions in Malaysia and Hong Kong provide growth momentum, and the shareholder return commitment is clear.

  Weaknesses

  Discretionary services such as wellness conditioning are also under consumption pressure, newly acquired and overseas businesses have lower initial margins, and margin expansion is not expected in the short term.

  Comparison

  Compared with Aier Eye Hospital and Topchoice Medical, it has stronger demand resilience, overseas growth, and shareholder returns, with the highest expected upside.

  Risks

  Intensified competition, changes in medical and TCM centralized procurement policies, talent loss, expansion difficulties, acquisition integration, and overseas project execution risks.

Key data

• Industry demand assessmentDiscretionary healthcare weak, essential healthcare stableDiscretionary healthcare spending is expected to remain unlikely to reverse quickly in 2H26 or 1H27.
• Aier Eye Hospital FY26E refractive revenue growth2.5%The forecast value of refractive surgery was lowered by about 5%, and the FY26E revenue forecast was lowered by 2.3%.
• Aier Eye Hospital earnings revisionFY26E adjusted net profit lowered by 7.7%The model incorporates a total of Rmb756mn in one-off back taxes and late-payment charges in 1H26.
• Topchoice Medical earnings revisionFY26E revenue and adjusted net profit lowered by 6.2% and 6.9%, respectivelyImplant and orthodontic case volume forecasts declined, and the lower-tier and low-price promotion strategy was less effective than expected.
• Gushengtang 2Q revenue expectationClose to 15% growthCore consultation demand is solid, but discretionary services such as wellness conditioning are weak.
• Gushengtang FY26E revenue growth14.5%Lowered from 15.6%, with the downward revision to domestic forecasts partly offset by an upgrade to overseas business.
• Gushengtang shareholder return commitmentNo less than HK$450mn per year or 60% of audited net profit, whichever is higherApplies from 2026 to 2028 and is combined with a share repurchase plan.
• Target prices and ratings300015.SZ: Rmb9.70, Neutral; 600763.SS: Rmb38.00, Neutral; 2273.HK: HK$40.00, OverweightTarget prices for Topchoice Medical and Gushengtang were lowered from Rmb42.00 and HK$41.00, respectively.

Impact & implications

Sector allocation should prioritize leaders with strong medical necessity, stable demand, compliant governance, and expansion capabilities, while remaining cautious on businesses dependent on discretionary household spending. Gushengtang is relatively more attractive thanks to core TCM demand, overseas replication, and higher shareholder returns; Aier Eye Hospital needs to wait for an inflection point in refractive surgery; Topchoice Medical needs to verify whether its low-price lower-tier strategy can improve case volume and unit economics. Tightening regulation may compress non-compliant revenue in the short term, but over the long term it will promote physician migration to high-quality private platforms and drive industry consolidation.

Risks

• Discretionary household consumption remains weak, further delaying recovery in refractive surgery, adult orthodontics, and wellness conditioning demand.
• Medical insurance reviews, DRG/DIP reform, and service pricing regulation create greater-than-expected pressure on revenue and profit.
• Hospital and clinic expansion, lower-tier market promotion, physician retention, or new business ramp-up falls short of expectations.
• Acquisition integration, overseas expansion, and margins of newly added assets are below expectations.
• Intensified industry competition triggers price cuts, higher customer acquisition costs, and pressure on margins for high-end products.
• Medical disputes, customer complaints, goodwill impairment, and tax matters bring additional losses.

What to watch

• 2H26 refractive surgery volume, adult orthodontic case volume, and recovery after the summer peak season.
• Customer traffic and average spending per customer for pediatric optometry, OK lenses, defocus lenses, and pediatric orthodontics.
• The actual impact of Aier Eye Hospital’s Rmb756mn back taxes and late-payment charges on full-year profit and cash flow.
• Topchoice Medical’s low-price lower-tier strategy, community promotion network, and conversion efficiency of the Yinxiu brand.
• Gushengtang’s core consultation growth, as well as revenue consolidation and margin performance from acquisitions in Hong Kong and Malaysia.
• Medical insurance compliance inspections, DRG/DIP reform, and changes in TCM centralized procurement policies.
• Multi-site physician practice, talent inflows to private platforms, and industry clearing progress against the backdrop of industry anti-corruption.