2023 results fall short of market expectations
The company announced 2023 results: revenue of 4.857 billion yuan, up 12.2% year on year; net loss to mother of 226 million yuan (loss of 2,833 million yuan in 2022); adjusted net loss of 107 million yuan (adjusted loss of 129 million yuan in 2022), lower than market expectations, mainly due to declining demand for products related to the epidemic and influenza.
Development trends
The online direct sales business achieved steady growth. By sector, according to the announcement, in 2023, of the company's main business revenue, 1) online direct sales achieved revenue of 3,528 billion yuan, a year-on-year increase of 14.1%, driving overall revenue growth. By the end of 2023, the company had a cumulative total of 41.5 million registered users, up 10.7% year on year; 2) business distribution revenue of 546 million yuan, up 25.0% year on year, mainly due to the increase in the company's product development and sales partners; 3) offline retail revenue of 644 million yuan, down 4.5% year on year.
Operational efficiency improved, and adjusted net loss continued to narrow. According to the announcement, in 2023, the company achieved a gross profit margin of 31.1%, a year-on-year decrease of 2.4 ppt, mainly due to changes in the product portfolio; from the cost side, the company's performance fee ratio of 10.1% (YOY-0.2ppt), sales expenses ratio of 20.0% (YOY-1.0ppt), R&D expenses ratio of 1.3% (YOY-0.8ppt), and management expenses ratio of 2.8% (YOY-1.3ppt) were all narrowed to a certain extent; in 2023, it achieved a net adjusted loss of 107 million yuan, corresponding The adjusted net loss ratio was 2.2%, an improvement of 0.8ppt compared to 2022.
Strengthen “medical+pharmaceutical” linkage and deepen digital operation capabilities. According to the announcement, the company has established a number of digital disease specialist centers and remote pharmacy service platforms, and launched special upper respiratory health services during the season of high incidence of respiratory diseases such as influenza A, B, and pulmonary branches. In terms of offline expansion, the company focuses on the cryptographic layout of core cities, steadily develops new cities, and actively promotes the “ownership+franchise+alliance” troika expansion strategy, which we believe is expected to support medium- to long-term scale growth.
Profit forecasting and valuation
Considering that online drug sales may gradually return to normal levels after the pandemic, we lowered our 2024 revenue forecast by 13.0% to 5.429 billion yuan (YoY +11.8%). Considering the company's further cost reduction and efficiency strategy, we kept the 2024 profit forecast unchanged for the time being, and introduced the 2025 profit forecast as a net loss of 10.45 million yuan. The current stock price corresponds to the 2024/2025 market sales ratio of 0.3 times/0.2 times. Maintaining an outperforming industry rating, considering the recent decline in the sector's valuation center, we lowered our target price by 61.2% to HK$1.48, corresponding 0.3 times the 2024 market sales rate and 0.3 times the 2025 market sales rate. There is 28.7% upside compared to the current stock price.
risks
Competition in the industry is intensifying, the market expansion rate is falling short of expectations, and there is a risk that customer unit prices will fall.