Matters:
Recently, the company disclosed its interim results for fiscal year 2024. Within the six months ended September 30, 2023, the company achieved revenue of 12.956 billion yuan, a year-on-year increase of 12.7%; profit of 445 million yuan, an increase of 172.2%; and adjusted net profit of 640 million yuan, an increase of 82.7% year-on-year.
Commentary:
Proprietary pharmaceutical business has achieved steady growth. The company's pharmaceutical self-operated business mainly includes independent B2C retail, related advertising business, and B2B collection and distribution business. Revenue during the reporting period was 11.4 billion yuan (+13.5% year-on-year). As of September 30, '23, the number of online direct-run store members had exceeded 77 million (+21% year-on-year). The increase in self-operated business revenue mainly benefits from the company 1) continuously enriching the self-operated B2C retail product categories and SKUs; 2) accelerating the layout of the prescription drug business, enriching SKUs, deepening cooperation with pharmaceutical companies, optimizing the online drug purchase process, and rapidly increasing the scale of prescription drug sales. During the reporting period, the company and AstraZeneca jointly built a platform for cardiovascular and cerebrovascular disease education and rehabilitation, and also cooperated with Daiichi Sankyo in the field of diseases such as rheumatology and orthopedic surgery to continue to provide patients with integrated services such as digital science popularization, prevention, consultation, drug purchase, and health management.
The pharmaceutical e-commerce platform business is expanding steadily. The company's pharmaceutical e-commerce platform business includes e-commerce platform business in categories such as pharmaceuticals, health food, medical devices, adult family planning, contact lenses, medical and health services that the company has acquired from Alibaba Group, as well as the outsourcing service business and new pharmaceutical retail services provided to the Tmall Pharmaceutical platform. During the reporting period, it achieved revenue of 1,021 billion yuan (+2.1% year-on-year), served more than 32,000 merchants (up more than 4,000 year-on-year), and inventory volume exceeded 64 million SKUs (+16 million year-on-year).
Profitability continues to improve. Benefiting from improved pricing capabilities and optimization of operating efficiency driven by refined operations and digital upgrades, and enhanced user platform drug purchasing stickiness brought about by upgrades in healthcare service processes and product experience, the company's gross margin during the reporting period was 22.1% (y-o-+2.1pcts); the sales expense ratio was 6.7% (y-0.8 pcts), thanks to the optimization of promotion strategies and the scale effect of continuous growth; the management cost rate was 1.3% (y-0.2 pcts); and the R&D cost rate was 2.5% (y-0.3 pcts).
Be optimistic about the company's long-term development and maintain the “recommended” rating. In the future, the company's pharmaceutical e-commerce business is expected to continue to lead the industry, and the healthcare and digital services business has great potential for growth. According to the company's latest business situation, we adjusted the company's revenue forecasts for the 2024-2026 fiscal year to 308.75, 355.53 and 39.228 billion yuan (previous forecasts for the 24-25 fiscal year were 307.61 billion yuan and 37.431 billion yuan), with year-on-year growth rates of 15.3%, 15.2% and 10.3% respectively; net profit forecasts were 8.03, 12 and 1,501 billion yuan, respectively, with year-on-year growth rates of 50.6%, 49.3% and 25.1%, respectively. Referring to JD Health and Peace Doctor, we used P/S for valuation. Based on the company's history and industry trends, we gave the company a target of 2.3 times P/S for fiscal year 2024, corresponding to HK$5.7, to maintain the “recommended” rating.
Risk warning: Stricter regulations on online sales of prescription drugs, business expansion falls short of expectations, etc.