Revenue grew steadily, and profits were under pressure in the short term. Maintaining “buy” rating companies achieved revenue of 9.191 billion yuan in 2023 (+17.49% year over year; net profit to mother of 133 million yuan (-42.01%); net profit after deducting non-return to mother of 127 million yuan (-42.34%). 2024Q1 achieved revenue of 2,439 billion yuan (+17.69%); net profit of 0.11 billion yuan (-83.72%); net profit after deducting non-return to mother of 0.1 billion yuan (-84.25%). In terms of profitability, gross margin for 2023 was 28.33% (-0.26pct), and net profit margin was 1.52% (-1.46pct). On the cost side, the 2023 sales expense ratio was 21.34% (+0.82pct); the management expense ratio was 3.23% (+0.58pct); and the financial expense ratio was 1.28% (+0.31pct). We are optimistic about the company's declining layout within the province and the expansion outside of the province. Considering the impact of the operating costs of the new logistics center and expenses such as marketing and promotion, the 2024-2025 profit forecast was added. The net profit for 2024-2026 is estimated to be 1.76/ 2.19/ 286 million yuan respectively (originally estimated 2024-2025 was 249/347 million yuan), EPS is 0.43/0.54/0.71 yuan. The current stock price corresponds to PE 28.9/23.3/17.8 times. Maintain a “buy” rating.
The number of stores has been expanding steadily. Shandong Province is still the main regional layout. The company added 1,881 new stores throughout 2023, including 342 new direct-run stores and 445 mergers and acquisitions.
As of 2024Q1, the company had 7,934 stores, including 4,341 direct-run stores and 3,593 franchise stores.
Specifically, Shandong Province is still the main layout area for direct-run stores. There are 3,643 direct-run stores in Shandong Province, accounting for 83.92% of the total number of direct-run stores; there are 698 stores outside the province, accounting for 16.08% of the total number of direct-run stores.
The new retail business has achieved breakthroughs, and the influence of its own brand has gradually increased, and B2C, O2O, and private sector operations have jointly driven the rapid growth of the company's new retail business, achieving sales of 1.29 billion yuan (+39.6%) in 2023. The continuous improvement of the digital intelligence system matrix and sophisticated global platform's refined operation system, organizational system and internal control process are expected to help the new retail business achieve breakthrough development. In addition, in 2023, sales of the company's own brand products increased 31% year-on-year, with sales revenue accounting for more than 13% of the total retail business, reflecting the positive results of expanding supplier channels and optimizing the product structure system; furthermore, its own brand “Chehua Traditional Chinese Medicine” developed a series of light health products based on consumer and market insight, with annual sales exceeding 200 million yuan (+41%), reflecting the gradual increase in the product strength and influence of the company's own brands.
Risk warning: Risk of policy changes. Store expansion falls short of expectations, product sales fall short of expectations.