According to Daimo, the management of 02211.HK is confident that its net profit will increase by at least 30% this year, because 1) the expansion of network coverage will help the growth of distribution sales; 2) the acquisition of retail drugstores; 3) the increase in the contribution of products with higher gross profit margin; and 4) lower sales and management costs. The bank expects Jintian's sales to grow by about 35 per cent this year and net profit to grow by 32 per cent.

The bank raised its forecast for distribution sales growth this year and next from 28 per cent and 25 per cent to 36 per cent and 28 per cent respectively, but lowered its retail growth forecast from 38 per cent and 40 per cent to 35 per cent and 33 per cent respectively. The bank also raised its gross margin forecast for this year by 50 basis points to 29 per cent and maintained its gross margin forecast of 29.7 per cent next year, while sales and management fees were cut by 70 basis points and 150 basis points respectively. Overall operating profit forecasts were raised by 100 basis points and 20 basis points to 14.8 per cent and 13.9 per cent, respectively.

In addition, the bank raised the earnings test per share of 2014 Compact 15 by 9% and 8%, maintaining the "overweight" rating, and raised the target price from 3.9 yuan to 4.5 yuan, reflecting the ideal growth prospect of distribution sales and the expected profit margin expansion. The current valuation is equivalent to a 2014-15 price-to-earnings ratio of 8 to 10 times, about 40 per cent discount to the industry, and the valuation is attractive.