The results for the first quarter of 2024 are in line with our expectations
The company announced its results for the first quarter of 2024: the company achieved operating income of 19.09 billion yuan, an increase of 2.16% year on year; net profit to mother was 389 million yuan, up 7.33% year on year, corresponding to basic earnings of 0.70 yuan per share, which is in line with our expectations.
Development trends
The performance of the distribution sector slightly exceeded our expectations. In the first quarter of 2024, the company's distribution revenue was 13.954 billion yuan, up 6.77% year on year; net profit was 240 million yuan, up 10.07% year on year. By the end of 2023, the company's distribution business covered 1,110 secondary and tertiary medical institutions in Liangguang, 8,373 primary care customers, and 6155 retail terminal customers (chain pharmacies, single stores, hospitals at their own expense). We believe that the company's distribution sector is expected to maintain a steady growth trend through product introduction, equipment business layout, and further deepening of batch and zero linkages.
The decline in retail sector performance was mainly due to the high base of anti-epidemic materials last year. In the first quarter of 2024, the company's retail sector revenue was 5.387 billion yuan, down 8.30% year on year, and net profit was 77 million yuan, down 49.94% year on year. This was mainly due to the high sales volume of emergency supplies such as physico-chemical diagnosis and masks in the retail sector during the same period last year. The company plans to focus on opening new stores and improving the operational efficiency and quality of operations of existing stores. The company's net increase in the number of new stores in 2023 is over 1,200, and in 2024, National University Pharmacy is expected to increase the number of stores by about 10% each year (not counting investment mergers and acquisitions). We believe that the company can continue to reduce costs and increase the efficiency of National University Pharmacies by focusing on core products, improving gross margin and collection capacity, negotiating housing rent reduction, and optimizing labor costs and improving labor efficiency.
Joint ventures in the industrial sector contribute to rapid growth in investment income. In the first quarter of 2024, the company achieved investment income of 103 million yuan, an increase of 17.13% over the previous year; of these, investment income in joint ventures was 110 million yuan, an increase of 42.41% over the previous year. We believe that the sharp increase in investment income contributed by joint ventures is mainly due to optimization of collaboration rates.
Profit forecasting and valuation
We keep the 2024/2025 EPS forecast of 3.19 yuan and 3.55 yuan unchanged. The current stock price corresponds to the 2024/2025 11.0 times/9.9 times price-earnings ratio. We maintain the company's performance rating. Considering the recent upward shift in the valuation center of the pharmaceutical distribution sector, we raised the target price by 10.5% to 42 yuan, corresponding to the 2024/2025 price-earnings ratio of 13.2 times/11.8 times, with 19.6% upside compared to the current stock price.
risks
With volume procurement price reduction pressure, new business expansion fell short of expectations.