The company released its 2023 mid-year report. 2023H1 achieved revenue of 79.357 billion yuan (+16.73%, same below), net profit attributable to parent of 1,343 billion yuan (+5.83%), and net profit of 1,295 million yuan (+17.09%) after deducting non-return net profit of 1,295 million yuan (+17.09%). In a single quarter, 2023Q2 achieved revenue of 37.265 billion yuan (+13.50%), net profit of 782 million yuan (-4.27%), and net profit of 722 million yuan (+14.80%) after deducting non-attributable net profit.
Revenue and profit for the second quarter were in line with expectations, and the overall brand promotion business performed well. The year-on-year growth rates of 2023Q2's revenue and net profit excluding non-attributable income were 13.50% and 14.80%, respectively, in line with market expectations. Net profit attributable to the second quarter and net profit not attributable to the parent increased by 39.32% and 26.00%, respectively, compared to the first quarter, and single-quarter performance accelerated.
By sector: 1) 2023H1 pharmaceutical distribution business revenue increased 14.01% year on year, laying the foundation for steady growth; 2) General brand promotion business (including pharmaceuticals and medical devices) revenue increased 38.74% year on year, gross profit increased sharply by 62.15% year on year, continuing to create a “second curve” for the company's profit growth; 3) New pharmaceutical retail business revenue increased 37.51% year on year, gross profit increased 26.00% year on year; 4) Digital logistics technology and supply chain solutions revenue increased 38.05% year on year, and gross profit increased 73.35% year on year; 5) Revenue from healthcare and technical services increased 38.83% year over year, and gross profit increased 43.27% year over year.
Refine the investment logic: As the company's REITs strategy is gradually implemented and the profit share of high-margin business continues to increase, the market will gradually realize the platform value and extension capabilities that the company has invested and accumulated over many years to push for a revaluation of the company's value.
According to the market's perception all along, Kyushu Express's main business is simple wholesale distribution. The business has characteristics such as low gross profit margin, poor cash flow, and large fixed asset investment. These characteristics are also the core reasons why the market is unwilling to invest in distribution companies. However, we believe that there is a huge bias in the market's perception of the company, which has caused the company's overall valuation to be significantly underestimated: on the one hand, the company's national logistics network system has been formed, and the peak period for fixed asset investment has passed. With the gradual implementation of the REITs strategy, fixed asset investment will not put much pressure on the company's operations. On the other hand, since the company began developing general promotion business and expanding Internet channels, the company has gradually transformed from a low-gross distribution business to a high-margin business. The gross margin of the company 2023H1 has increased from 6.05% in 2011 to 8.42%, mainly due to the increase in the share of high-margin business.
Profit forecasting and valuation. The company is expected to achieve net profit of 2,592 billion yuan, 3,068 billion yuan, and 3.625 billion yuan in 2023-2025, an increase of 24.3%, 18.4%, and 18.1% over the previous year. The corresponding PE for 2023-2025 is 11X, 9X, and 8X respectively, maintaining the “buy” rating.
Risk warning: Market competition increases risks; drug quality accidents affect the company's operating risks; there is a risk of bad debts in accounts receivable.