1H23 performance slightly exceeded our expectations
The company announced 1H23 results: revenue of 79.357 billion yuan (YoY +16.7%); net profit of 1,343 billion yuan (YoY +5.8%), corresponding to profit of 0.71 yuan per share, after deducting non-attributable net profit of 1,295 billion yuan (YoY+17.1). The performance slightly exceeded expectations, mainly due to a slight increase in gross margin.
Development trends
A single 2Q company achieved steady growth in revenue and net of non-profit. Single Q2 revenue increased 13.5% year over year to 37.265 billion yuan, and net profit excluding non-attributable income reached 722 million yuan, up 14.8% year on year. By business, 1H23's digital pharmaceutical distribution and supply chain business revenue was 67.488 billion yuan (YoY +14.0%); total brand promotion revenue of 8.637 billion yuan (YoY +38.7%); pharmaceutical industry self-production and OEM business revenue of 1,182 billion yuan (YoY +5.4%); new pharmaceutical retail business revenue of 1,442 billion yuan (YoY +37.5%); digital logistics technology and supply chain solutions revenue of 403 million yuan (YoY +38.1%); healthcare and technology value-added service revenue 105 million yuan (YoY +38.8%).
The gross margin increased year over year, and the overall cost ratio increased slightly. 1H23 achieved a comprehensive gross profit margin of 8.4% (YOY+0.4ppt), mainly due to an increase in the share of high-margin business (instruments, general sales, traditional Chinese medicine, etc.). 1H23 The company's sales expense ratio is 3.0% (YOY+0.3ppt), the management expense rate is 1.7% (YOY+0.1ppt), and the R&D expense rate and financial expense ratio are 0.1% and 0.8%, respectively (YoY is basically the same). The net cash flow generated by the company's operating activities during the 1H23 period was 518 million yuan, an increase of 125.22% over the previous year. Of these, 2Q23 net cash flow reached 3,540 million yuan. For the first time in recent years, the company's net operating cash flow was corrected in half a year.
The new retail business is developing smoothly. The company is currently building four major business systems of “10,000 store franchise, new retail O2O, direct chain management, and professional pharmacies” to build a comprehensive retail ecosystem network. According to the announcement, 1H23 continues to promote the “Wandian Alliance” program. By the end of August, the company's “Wandian Alliance” program had achieved 15,856 self-operated and franchise pharmacies. Among them, 1H23's sales revenue to franchise stores was 1,642 billion yuan, an increase of 51% over the previous year. 1H23 is actively expanding O2O services for franchise stores, and the O2O business covers more than 2,200 stores.
Profit forecasting and valuation
Keep the 2023 and 2024 earnings forecasts unchanged. The current stock price corresponds to 2023/2024 11.5 times/9.9 times the price-earnings ratio. It maintains outperforming industry ratings, but due to recent major adjustments in sector valuations, we lowered our target price by 20.0% to 16.02 yuan, corresponding to 18.4 times the 2023 price-earnings ratio and 15.9 times the 2024 price-earnings ratio. There is 60.2% upside from the current stock price.
risks
The implementation of the new strategy has fallen short of expectations, and internal integration and results have fallen short of expectations.