Morgan Stanley raises Aier Eye Hospital's target price to Rmb11.00 but maintains an Underweight rating

Overview

This is a Morgan Stanley risk-reward update on Aier Eye Hospital Group. The report incorporates 2025 and 1Q26 results into the model and believes that, as a leading ophthalmology service operator, the company still benefits from scale advantages, a tiered nationwide network, a mature business model, and a global footprint, but it continues to face short-term macro and industry headwinds such as weak consumer conditions, pricing pressure, and intensifying competition.

Core views

The core view is that Aier Eye Hospital should still trade at a valuation premium relative to A-shares and emerging-market healthcare services peers, but valuation is not cheap under current near-term growth expectations, so Morgan Stanley maintains an Underweight rating. The report expects 2026e-27e revenue CAGR of about 8-9%, below management's 10%+ target; recurring profit CAGR of about 17% for 2025-27e; and 2028 revenue and net profit growth of 7% and 13%, respectively.

Analysis framework

The report uses a risk-reward framework and DCF valuation, combining 2025 results, 1Q26 trends, revenue forecasts, gross margin recovery, expense ratio improvement, capital expenditure assumptions, hospital upgrades, and network expansion pace to update the target price and scenario analysis.

Methodology notes

• Valuation methodsdiscounted cash flow

  DCF valuation

  Morgan Stanley uses DCF as the primary valuation method, applying a WACC of 8.5% and a terminal growth rate of 3%, with the DCF forecast period starting in 2026.

• forecastingMorgan Stanley ModelWare

  Earnings forecast model

  Unless otherwise stated, the core financial metrics in the report are based on the Morgan Stanley ModelWare framework, and EPS and revenue forecasts reflect the analyst's estimates.

• scenario_analysisRisk Reward

  Bull, base, and bear scenarios

  The risk-reward framework provides a bull-case scenario of Rmb18.00, a base-case scenario of Rmb11.00, and a bear-case scenario of Rmb7.50 to assess share price potential under different assumptions for growth, margins, and network expansion.

Asset mapping & comparison

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

• Aier Eye Hospital Group (300015.SZ)

  Covered stock

  Strengths

  Leading scale, a tiered nationwide network, a mature business model, and a global footprint, along with a dual-engine model of the listed company plus M&A funds supporting hospital upgrades and network expansion.

  Weaknesses

  Short-term consumer conditions remain weak, gross margin recovery and expense ratio improvement are more gradual, and valuation is not cheap relative to near-term growth.

  Comparison

  The report believes the company should still trade at a valuation premium relative to A-shares and emerging-market healthcare services peers, but assigns an Underweight rating relative to Morgan Stanley's coverage universe.

  Risks

  Intensifying competition, tighter policy and pricing regulation, weaker-than-expected recovery in demand for ophthalmology services, slow ramp-up of new or upgraded hospitals, and medical disputes and customer complaints.

Key data

• Stock ratingUnderweightMorgan Stanley maintains its relative stock rating.
• Industry viewAttractiveThe view on China's healthcare sector is Attractive.
• Target priceRmb11.00Raised from Rmb10.50 to Rmb11.00.
• Current share priceRmb10.41As of the close on April 23, 2026.
• Implied upsideabout 5.67%Based on the Rmb11.00 target price and the Rmb10.41 closing price.
• 2026e-27e revenue CAGR8-9%More conservative than management's 10%+ target.
• 2028 revenue growth7%This update introduces the 2028 forecast for the first time.
• 2028 net profit growth13%This update introduces the 2028 forecast for the first time.
• EPS forecast2025: Rmb0.35; 2026e: Rmb0.43; 2027e: Rmb0.49; 2028e: Rmb0.56From the report table.
• Global revenue exposureMainland China 80-90%Other regions include Europe ex UK, North America, and the UK, each at 0-10%.
• Institutional active ownership ratio45.3%Inst. Owners Active ratio disclosed in the report.

Impact & implications

The target price increase reflects lower capital expenditure assumptions and solid 1Q26 momentum, but the Underweight rating indicates that the analyst does not view the current share price as attractive on a risk-adjusted return basis over the next 12-18 months. From an investment perspective, the company's long-term market-leader quality is still recognized, but in the short term investors need further validation on consumer recovery, traffic and ticket-size improvement, ramp-up of new hospitals, and whether regulatory pressure will remain moderate.

Risks

• Rising competition in the ophthalmology services industry may weigh on growth and margins.
• Government policy and price controls may tighten, including volume-based procurement and regulatory measures for consumables or services such as OK lenses.
• The ramp-up of newly built or upgraded hospitals may be slower than expected.
• Patient visits and average spending per patient may grow less than expected.
• Insufficient utilization at new hospitals may erode margins and cause dilution.
• Potential medical disputes and customer complaints may affect brand and operations.

What to watch

• Quarterly results and monthly growth trends.
• Potential asset injections from M&A funds or direct acquisitions by the listed company.
• Regulatory updates related to ophthalmology consumables and services.
• Major changes in the industry competitive landscape.
• Whether demand for ophthalmology services shows a steeper recovery.
• The ramp-up speed of newly built and upgraded flagship hospitals.