1Q24 Net profit grew steadily and profitability continued to improve
The company's 23 year operating income/net profit attributable to mother/net profit net profit excluding non-return to mother was RMB 208.12/8.50/837 million yuan, +9.2%/+21.1%/+20.4% year-on-year, in line with the performance report and equity incentive targets. The company's 1Q24 operating income/ net profit attributable to mother/ net profit excluding non-attributable net profit of 5.775/3.00/297 million yuan, +8.3%/+15.0%/+14.9% year-on-year. We expect 24-26 EPS of 2.82/3.40/4.13 yuan. We expect EPS of 0.77 yuan for industrial business. Considering that the net interest rate at the beginning of industrial development is still low, we will give 14x PE (the 24-year comparable company Wind is 1.47 yuan); if the 24-year wholesale business EPS is 1.47 yuan, we will give 10x PE (the 24-year comparable company Wind is consistent 10x); and the 24-year retail and other business EPS 0.57 yuan. Considering that the company's stores are concentrated in Guangxi, we will give 10x PE (consistent expectation 13x for 24-year comparable company Wind). The target price is 31.29 yuan, maintaining the “buy” rating.
The overall cost ratio of 1Q24 decreased slightly year-on-year, and gross margin increased the company's 23-year sales/management/R&D/finance expense ratio by 2.66%/2.26%/0.18%/1.20%, -0.14/+0.07/+0.04pct; the company's 1Q24 sales/management/R&D/finance expense ratio 2.34%/1.72%/0.12%/0.94%, +0.17/-0.40/-0.05pct year on year. The gross profit margin for '23/1Q24 was 11.89%/12.25%, +0.38/+0.18pct. We believe that revenue structure optimization drives continuous improvement in profitability.
The growth rate of industrial performance in '23 was impressive, accelerating the transition between old and new kinetic energy
Industrial revenue/net profit to mother in '23 billion yuan (+40%/+56% yoy): 1) Xianju Traditional Chinese Medicine:
Revenue/net profit of 66/120 million yuan (+52%/+47% yoy); 2) Chinese medicine formula granules: revenue/net profit of 0.9/0.2 billion yuan, and the filing of more than 470 varieties has been completed by the end of 1Q24; 3) Wantong Pharmaceutical: revenue/net profit of 2.6/0.9 billion yuan (-7%/-17% yoy); 4) Kangsheng Pharmaceutical: revenue/net profit of 100/0.2 billion yuan, focusing on in-hospital preparations. 1Q24 industrial revenue/net profit to mother was 27/50 million yuan (+9%/+14% yoy), and the growth rate slowed down due to external policies.
Wholesale equipment revenue grew rapidly year on year in '23, and retail profit significantly improved wholesale revenue/net profit to mother of 16.79 billion yuan (+10% yoy) in '23, of which equipment revenue was +20% year over year; 1Q24 wholesale revenue/net profit to mother was 4.70/ 210 million yuan (+6%/+14% yoy).
Retail revenue/net profit to mother of 23 billion yuan (-2%/+21% yoy), driving rapid profit growth with cost reduction and efficiency; 1Q24 retail revenue/net profit to mother of 7.8/40 million yuan (+20%/+22% yoy).
The three core businesses have developed comprehensively and maintained a “buy” rating
We expect net profit from 24-26 to be 10.2/12.3/1.5 billion yuan, up 20.2%/20.7%/21.5% year-on-year. The current stock price corresponds to the 24-26 PE valuation of 8x/6x/5x. We adjusted the target price to 31.29 yuan (previous value of 30.11 yuan) to maintain the “buy” rating.
Risk warning: The impact of the external environment exceeded expectations; the growth of industrial revenue and net profit fell short of expectations.