Goseitang updated its 1Q24 business data. The number of 1Q24 visits was about 1.07 million, an increase of about 42.1% over the previous year. Among them, the number of 1Q24 visits to newly established stores between April 1, 23 and March 31, 24 was about 74,000, contributing 9.8% of the total number of visits. Management said the number of visits to old stores increased by 32.2%. The strong increase in the number of outpatients was partly due to the low base due to the January-January 23 outbreak. However, there was a concentrated outbreak of backlog demand in March 23, causing a certain high base, but the increase in the number of outpatients still exceeded 30% in March '24. Meanwhile, management said the 1Q24 customer unit price increased by more than 2% year over year. Based on the company's good cash flow performance, management plans to increase the annual dividend and repurchase ratio to 30-50% of net profit over the next 3-5 years to better give back to shareholders.
The expansion of offline stores is accelerating. In '23, Goseido acquired a total of 7 stores and opened 3 new branches. Entering 24, the company's store expansion has accelerated markedly. Since the beginning of the year (as of April 26, 2024), Gushengtang has acquired 6 stores (Beijing, Kunshan, Suzhou and Ningbo (3)) and built 1 new store (Shanghai). The additional stores have further strengthened the company's store density in regions with a high level of economic development, such as the Yangtze River Delta. We believe that as the public's recognition of traditional Chinese medicine continues to increase and residents in economically developed regions have strong purchasing power for medical services, Gushengtang will continue to benefit. 1Q24 Gushengtang's outpatient clinic volume in Guangzhou, Beijing, and Shanghai all grew by 50% or more, reflecting the strong growth of the company's business in economically developed regions. The management plans to add 10-15 stores in '24. Based on the 7 stores added so far, we believe Gushengtang has laid a solid foundation to achieve its expansion goals throughout the year.
The business development ceiling is high. In '23, Gushengtang accounted for 3.3% of the total number of outpatient clinics in Shenzhen, 2.2% in Guangzhou, 1.1% in Shanghai, and 0.4% in Beijing. Gushengtang's outpatient penetration rate is still low, which means that the business penetration rate ceiling is high. In comparison, the number of traditional Chinese medicine practitioners in the Gushengtang network accounts for 6.5% of Shenzhen, 9.2% of Guangzhou, 7.4% of Shanghai, and 1.8% of Beijing. The penetration rate of Gushengtang's outpatient clinics is far lower than the penetration rate of physicians, which also shows that there is huge room to be developed in Gushengtang's existing doctors' resources.
Introduce a normalized shareholder return plan. Gushengtang paid a special dividend of HK$0.41 per share in October '23, for a total amount of RMB 89.76 million. Furthermore, in June '23, the company approved a repurchase plan to repurchase no more than 10% of the shares, making a total repurchase of HK$42.92 million over 23 years. The 23-year dividend and repurchase amount is equivalent to 51% of Gushengtang's net profit returned to the mother in '23. According to our statistics, since the beginning of the year (as of April 26, 2024), the company has repurchased approximately 0.7% of the total share capital at the beginning of the year, with a cumulative amount exceeding HK$65 million, which is equivalent to 15% of our forecast net profit for 2024. Based on the company's good cash flow performance, management plans to increase the annual dividend and repurchase ratio to 30-50% of net profit over the next 3-5 years to better give back to shareholders.
Maintain a buy rating. Maintain target price of HK$71.96 (WACC: 10.1, sustainable growth:
3.0%). We expect Gushengtang's 2024E/ 25E/ 26E revenue growth rate to be 34.8%/32.9%/29.9%, and adjusted net profit growth rate of 38.2%/36.6%/34.4%