Event: The company released its 2023 three-quarter report. In the first three quarters of 2023, the company achieved revenue of 58.38 billion yuan (+15.5%); net profit of 520 million yuan (-33.62%); net profit of 520 million yuan (-33.62%) after deducting non-return net profit of 4.7 billion yuan (-34.4%). 2023Q3 achieved revenue of 17.67 billion yuan (-1.1%); net profit of 0.4 billion yuan (-99%); net profit after deducting net income of 0.5 billion yuan (-101.2%).
Affected by the industry policy environment, the third quarter results were under short-term pressure. In the third quarter, the company continued to promote some foreign investment mergers and acquisitions projects, accelerate the improvement of digital capabilities, promote organizational restructuring, and continue to improve in terms of network coverage, logistics and distribution, and marketing capabilities. In the future, the company will continue to advance the 300-city plan of the “14th Five-Year Plan” strategic plan. With the gradual increase in market coverage in prefecture-level cities, the company will further strengthen the expansion of drug distribution and medical device distribution markets.
Gross margin declined slightly due to volume procurement. Net interest rate declined compared to last year due to cost increases, credit impairment, and fair value changes in the same period last year. The gross margin of the 2023Q3 company is 8.2% (-0.1pp); the net profit margin is 1.1% (-0.9pp). In terms of expenses, the sales rate for 2023Q3 companies is 2.8% (-0.1pp); the management rate is 1.8% (+0.1pp); and the financial rate is 1.7% (+0.1pp).
Optimize the business structure and build a development engine. 1) Actively promote high quality equipment business. In the future, the company will focus on market segments such as orthopedics, assisted reproduction, and disinfection supply, etc., build a market segment platform for equipment, actively promote SPD projects, and expand market segment share. 2) Deepen the distribution business of traditional Chinese medicine and extend the industrial chain upstream. About 140 companies under the company have licenses to operate Chinese herbal medicines and Chinese medicine tablets, and have launched about 120 traditional Chinese medicine businesses. Furthermore, the company has shares in 1 Chinese medicine formula granule manufacturer in Chongqing (factory construction completed and trial production began in November 2023), and 1 Chinese medicine tablet manufacturer in Hangzhou (production and operation started in February 2023, production capacity 5,000 tons/year). 3) The retail sector is driven by a two-wheel drive of “self-operation+franchise”. Relying on the advantages of zero-batch integration, it strengthens integrated online and offline operations, and continues to develop DTP pharmacies.
Profit forecasts and investment advice. The reform of state-owned enterprises is deepening. The company closely focuses on the general strategic guiding philosophy of “one thousand two doubles, three hundred cities, three modernizations, four energies, five routes”, continuously optimizes the industrial structure and activates the momentum for enterprise growth. Net profit for 2023-2025 is estimated to be 600 million yuan, 1.03 billion yuan, and 1.18 billion yuan respectively, with a year-on-year growth rate of -37%/71.4%/14.9%, respectively, corresponding to PE of 15/9/8 times. Maintain a “buy” rating.
Risk warning: mergers and acquisitions or failure to meet expectations; risk of rising financing costs; risk of price reduction in collection; repayment or failure to meet expectations.