Covered for the first time, an increase in holdings rating is given. The 2023-2025 EPS is expected to be 3.15/3.73/4.44 yuan. The absolute valuation method and relative valuation method are adopted. According to the principle of prudence, a lower valuation is selected, and the target price is 60.19 yuan, corresponding to the 2024 PE16X, which is covered for the first time, and an increase in holdings rating is given.
The national dual center layout has a high expansion ceiling. The market believes that the company is a regional industry leader, and the ceiling is low; we believe that the company has gradually opened up development space in Southwest China and Hebei, and that the Yunnan region still has the potential to sink further. From 2014 to 2023Q3, the number of stores outside Yunnan increased from 18% to 36%, and there is an acceleration trend in recent years. The main reason is that ① the competitive pattern of retail pharmacies in the expansion areas of companies such as Sichuan, Chongqing, Guangxi, Hebei, and Liaoning is scattered, and there are many individual and small to medium chains. The company is expected to achieve integration with good scale advantages and operating experience. Various subsidiaries have achieved close or break-even; ② The successful merger and acquisition experience of Tang Ren Pharmaceutical has accumulated valuable large-scale mergers and acquisitions. Laying the foundation for rapid expansion outside the province; ③ The company's diversified business formats, beauty, online business, etc. help attract young customers and form differentiated competition with other pharmacies, thus gradually seizing market share.
The growth rate of old stores has rebounded steadily, and coordination is expected to contribute to the increase. The company's same-store growth rate in 2023 is under pressure, mainly due to residents digesting household inventory and the phased attraction of pharmacy traffic by primary medical institutions in Yunnan. Factors are expected to weaken over 2024, and the growth rate of old stores is expected to be steady, moderate and positive. As a key part of the outflow of prescriptions, pharmacy access coordination is progressing rapidly across the country in 2023, and the benefits of co-ordinated pharmacies are gradually showing. Progress is relatively slow in the Yunnan region, but in the future, with the completion of platform construction and system integration, policy implementation will come to fruition, and the company, as a leader, is expected to benefit from sales opportunities brought by a large number of high-quality customers.
Catalysts: The speed of opening stores exceeded expectations, and the Yunnan outpatient clinic was implemented in an integrated manner.
Risk warning: The progress of store expansion falls short of expectations, and the outflow of prescriptions falls short of expectations.