Matters:
The company released its three-quarter report for 2023. The company's revenue was 6.5 billion yuan (+38.03%), and net profit was 278 million yuan (+42.03%). In the third quarter alone, the company's revenue was 2.162 billion yuan (+26.96%), and net profit was 120 million yuan (+13.94%).
Commentary:
The company's stores have maintained rapid and steady expansion, and the online business has grown rapidly. The company's “self-build+acquisition” expansion strategy continued to advance. As of the end of the reporting period, the revenue of the company's mature stores had grown steadily, M&A projects in Jiliao and southwest China were steadily integrated, and early self-built stores gradually matured and made a continuous contribution to performance. As of September 2023, the number of company stores was 4,711, 684 new stores within one year, accounting for 14.52%, 449 new stores under two years of age, accounting for 9.53%. The total number of new stores and sub-new stores was 1,133, the share fell to 24.05% from 28.42% in the same period last year; the total number of stores over two years (including sporadic mergers and acquisitions) was 3,578, accounting for 75.95%. The number of stores was a net increase of 728 over the same period last year, an increase of 18.28%, and the number of stores increased 16.18% from the beginning of the year. Meanwhile, the online business increased by 67.92% over the same period last year. Among them, the O2O business developed rapidly, with revenue of 570 million yuan (+126.7%), accounting for 8.75% of revenue. The company's member customer base is stable. As of September 30, 2023, the number of active members of the company exceeded 25 million, membership consumption from January to September 2023 accounted for more than 70%, and the membership return rate reached 78%.
Actively accepting the outflow of prescriptions, the share of pharmaceuticals has increased significantly. In the first three quarters, the company actively undertook incremental business brought about by the long-term trend of outflow of customers from hospitals through category planning adjustments. The sales revenue of prescription drugs and non-prescription drugs increased by 47.91% and the structural share increased by 4.65%; the company actively responded to the short-term decline caused by health insurance policy adjustments in health products and other categories, and sales revenue of Chinese herbal medicines, health food, personal care products, and medical devices increased 18.87%.
Investment advice: Be optimistic about the company's long-term development and maintain the “recommended” rating. We believe that the company's performance growth trend for the next 3 years is quite clear. The valuation is still in the bottom range and has good mid-term investment value. The company's net profit from 2023-2025 is estimated to be 4.4/55/ 7.1 billion yuan, respectively, with a year-on-year growth rate of 20.5%/26.4%/28.2%, respectively. Referring to comparable company valuations and combining its own development potential, the company was given a target PE of 20 times in 2023, corresponding to the target price of 68 yuan, and maintained a “recommended” rating.
Risk warning: The profit of newly opened stores falls short of expectations, integration falls short of expectations, etc.