1Q24: Steady growth in performance and continuous improvement in profitability
The company's 1Q24 operating income/net profit attributable to mother/ net profit excluding net profit of 19.090/3.89/370 billion yuan, compared with +2.16%/+7.33%/+5.10% YoY. 1Q24's profitability improved, driving profit growth faster than revenue growth. We expect EPS of 3.16/3.42/3.71 yuan in 24-26 years. Under the segmented valuation, pharmaceutical retail/pharmaceutical wholesale/investment income (industry) is equivalent to EPS 0.47/1.94/0.75 yuan. Comparable to the 24-year Wind, the average PE value is 16x/10x/16x. We give the company a 24-year PE valuation of 16x/10x/16x for pharmaceutical retail/pharmaceutical wholesale/investment income (industrial), corresponding to a target price of 38.86 yuan, maintaining a “buy” rating.
The 1Q24 company's expense ratio decreased slightly year on year, and the gross margin decreased the company's 1Q24 sales/management/R&D/finance expenses ratio by 6.61%/1.32%/0.03%/0.24%, -0.14/-0.10/+0.02/+0.01pct year on year. The gross profit margin for 1Q24 was 10.86%, -0.56pct year on year. We believe that gross margin decreased year over year or that the share of revenue from COVID-related products with high gross margin declined year on year.
The performance of the 1Q24 distribution sector grew steadily. Due to the high base pressure, the 1Q24 distribution sector of the company achieved operating income of 13.954 billion yuan, an increase of 6.77% over the previous year; net profit of 240 million yuan, an increase of 10.07% year on year. We expect the distribution sector's revenue/net profit to be increased by 5%/8% year over year in '24. The 1Q24 retail sector achieved revenue of 5.387 billion yuan, a year-on-year decrease of 8.30%; realized net profit of 77 million yuan, a year-on-year decrease of 49.94%. We believe that the 1Q24 retail sector is passively pressured by high sales of COVID-related products in the same period last year and the growth rate of performance under a high base. We expect retail sector revenue/net profit to be increased 9%/16% year on year in '24. 1Q24's investment income in joint ventures and joint ventures was 110 million yuan, an increase of 42.4% over the previous year.
Profit is expected to continue to improve and maintain the “buy” rating
We maintain our profit forecast. The net profit for 24-26 is 17.57/19.02/2,067 billion yuan, up 9.9%/8.3%/8.7% year on year. The current stock price corresponds to the 24-26 PE valuation of 11x/11x/10x. We adjusted the target price to 38.86 yuan (previous value 36.17 yuan) to maintain the “buy” rating.
Risk warning: The impact of volume procurement exceeded expectations; pharmaceutical retail outreach mergers and acquisitions fell short of expectations; pharmaceutical retail profit improvements fell short of expectations; industrial investment returns fell short of expectations.