Introduction to this report:
2024Q1 distribution maintained steady growth, and retail declined due to a decline in high base growth, and the industry contributed steady revenue. With improvements in internal business quality and product restructuring, the company's net interest rate is expected to continue to rise.
Key points of investment:
Maintain an increase in holdings rating. Maintain the 2024-2025 EPS forecast of 3.19/3.53 yuan, and add the 2026 EPS forecast of 3.86 yuan. Referring to comparable company valuations, the company was given PE 15X in 2024, the target price was raised to 47.85 yuan, and the shareholding rating was maintained.
The performance was in line with expectations. 2024Q1 achieved revenue of 19.09 billion yuan (+2.16%), net profit attributable to mother of 389 million yuan (+7.33%), and net profit of 370 million yuan (+5.10%) after deducting non-return to mother. Net investment income of 103 million yuan (+17.13%), and the industrial sector contributed to stable profits, driving the company's net profit growth rate higher than the revenue growth rate. The results were generally in line with expectations.
Distribution is growing steadily. 2024Q1's distribution revenue was 13.954 billion yuan (+6.77%), achieving good growth, +12.64% month-on-month, and the impact of industry restructuring on the company gradually weakened. The competitive distribution pattern is relatively stable. As a distribution leader in Liangguang, the company is expected to achieve steady growth. Net distribution profit of 240 million yuan (+10.07%), net profit margin of 1.72% (+0.05pct), maintained a steady upward trend under cost reduction and efficiency.
Retail sales declined due to a high base. 2024Q1's retail revenue was 5.387 billion yuan (-8.3%), mainly due to a slowdown in growth under a high base. The base improved throughout the year, and the apparent growth rate is expected to improve quarterly. Net profit of 77 million yuan (-49.94%), net profit margin of 1.43% (-1.21pct), is expected mainly due to a decline in gross margin, which is related to the high demand for materials related to the 2023Q1 epidemic and few promotional activities. By the end of 2023, the company's co-ordinated stores reached 3,012. As the number of co-ordinated stores increases and the sources of prescriptions become more abundant, the company will benefit more clearly from the outflow of prescriptions. National University Pharmacies are expected to maintain a growth rate of about 10%. While growing steadily, they will improve the quality of internal operations, including actual store operations, product procurement, etc., which is expected to increase retail gross profit margin, thus driving net profit margins.
Risk warning: Profit improvements fell short of expectations, and prescription outflows fell short of expectations.