We use a DCF methodology to derive our target price of Rmb7 for Aier. Our DCF model factors in revenue and earnings forecasts up to 2034E, and our assumptions include a terminal growth rate of 3% and a WACC of 10.2% (beta of 1.0; risk-free rate of 3%).

Key downside risks that could cause Aier shares to trade below our target price include: 1) slower surgery growth; 2) slower progress in acquiring hospitals; and 3) slower ramp-up in new hospitals. Key upside risks that could cause Aier shares to trade above our target price include: 1) faster surgery growth on macro recovery; 2) better-than-expectation overseas business growth; and 3) better-than-expectation GPM increase. These risks could impede the stock from reaching our target price.