Integrated distribution platform, steady revenue growth. Established in 1999, Kyushu Express is a technology-driven full-chain pharmaceutical industry integrated service provider. Its main business includes six major areas: digital pharmaceutical distribution and supply chain business, general brand promotion business, pharmaceutical industry's own production and OEM business, new pharmaceutical retail and 10,000 store franchise business, healthcare and technology value-added services, and digital logistics technology and supply chain solutions.
In 2019-2022, the company's revenue increased from 99.497 billion yuan to 144.24 billion yuan, with a CAGR of 12.17%; net profit to mother increased from 1,727 billion yuan to 2,085 billion yuan, with a CAGR of 6.49%; deducted non-net profit increased from 1,525 billion yuan to 1,734 billion yuan, and the CAGR reached 4.36%. In the first three quarters of 2023, the company achieved revenue of 114.364 billion yuan, an increase of 11.09% over the previous year; realized net profit without return to mother of 1,728 billion yuan, an increase of 14.01% year on year; and net cash flow from operating activities was 799 million yuan, a sharp increase of 154.30% over the same period.
The results of innovation, transformation and upgrading are remarkable, and the digital distribution business continues to expand. The company took the lead in implementing the transformation and upgrading of traditional pharmaceutical distribution business to digitalization, platformization and internetization, and implemented a comprehensive service model of “pharmaceutical distribution+logistics distribution+product promotion” in line with the needs of upstream and downstream customers, which has achieved remarkable results. The company has built a “100 billion” pharmaceutical supply chain service platform, which is scarce in the industry, and completed the business layout of all categories of procurement, omni-channel coverage and full-scenario services. In the first three quarters of 2023, the company's digital logistics technology and supply chain solution business increased 31.59% year on year, and gross profit increased sharply by 50.11% year on year. The scale of the company's digital distribution business for single pharmacies, clinics and other customers continued to expand. The scale of the drug 99 B2B e-commerce platform's self-operated transactions reached 8.493 billion yuan; the platform has 400,000+ registered users and 350,000+ active users, covering 99% of the country's administrative regions, making it the leading domestic digital intelligent transaction service platform.
The REITs strategy is being actively promoted and distributed in batches to revitalize high-quality assets. By the end of the third quarter of 2023, the company continued to apply and issue public REITs with the support of relevant government departments at all levels. The company plans to use more than 3.3 million square meters of pharmaceutical logistics warehousing assets and supporting facilities as underlying assets to issue public REITs in batches to revitalize the company's huge warehousing and logistics assets and supporting facilities, restructure the company's asset-light operation business model, accelerate asset liquidity, broaden diversified equity financing channels, and establish a virtuous cycle model for asset development to enhance the company's asset operation capabilities and achieve diversified benefits.
The company officially submitted public REITs application materials to the National Development and Reform Commission in October 2023.
Profit forecasting and investment advice. We predict that the company's net profit for 2023-2025 will be 2,369 billion yuan, 2,723 billion yuan, and 3.171 billion yuan, respectively, up 13.6%, 14.9%, and 16.4%, and EPS will be 0.61, 0.70, and 0.81 yuan respectively. Considering that the company is a leading domestic private pharmaceutical distribution leader, innovation, transformation and upgrading are expected to bring valuation premiums. At the same time, REITS issuance enhances liquidity. We give it 15-19 times PE in 2024, corresponding to a reasonable value range of 10.45-13.24 yuan “Better than the market” rating.
Risk warning: risk of digital transformation falling short of expectations; risk of market competition; risk of policy impact; risk of bad accounts receivable.