2023 and 1Q24 results are in line with our expectations

The company announced 2023 results: revenue of 150,140 billion yuan, up 6.92% year on year; net profit due to mother, up 4.27% year on year, net profit after deduction of 1.96 billion yuan, up 13.06% year on year; announced 1Q24 results: revenue of 40.472 billion yuan, down 3.85% year on year; net profit to mother of 538 million yuan, net profit reduced by 4.19% year on year, net profit from non-return to mother of 522 million yuan, a decrease of 9.01% year on year. 1Q24 was mainly affected by the high base of epidemic materials, 2023 and The 1Q24 results were in line with our expectations.

Development trends

Revenue growth was steady in 2023. In 2023, the company's digital pharmaceutical distribution and supply chain revenue was 124.042 billion yuan (YoY +2.47%); total generation brand promotion revenue of 19.584 billion yuan (YoY +46.01%); pharmaceutical industry's own production and OEM revenue of 2,476 million yuan (YoY +2.70%); new pharmaceutical retail revenue of 2,815 million yuan (YoY +10.95%); logistics and supply chain revenue of 849 million yuan (YoY +28.45%); healthcare and technology value-added service revenue of 216 million yuan (YoY+) 5.69%). On the basis of steady growth in the distribution business, the company achieved rapid growth in new businesses such as general brand promotion, logistics and supply chain.

Gross margin increased year over year in 2023. In 2023, the company's gross profit margin was 8.1% (YOY+0.3ppt), sales expenses ratio 2.9% (basically the same as year on year); management expenses ratio 1.9% (YOY+0.1ppt). 1Q24's gross profit margin was 7.2% (YOY-0.4ppt), sales expense ratio 2.6% (YOY-0.3ppt); management expense ratio was 1.6% (basically the same as the previous year), and the 1Q24 company's cost control situation was further improved.

Continue to implement the “three new, two modernizations” 1 strategy, and the transformation and upgrading are worth looking forward to. According to the announcement, the company plans to:

1) In terms of new product strategy, the company aims to increase overall sales revenue by no less than 15% in 2024 over the same period last year; 2) In terms of new retail strategy, the company aims to achieve a total number of direct-operated and franchised stores surpass 25,000 by 2024; 3) In terms of new medical strategy, the company aims to achieve “Jiuxin Clinic” and 200 alliances in 2024; 4) In terms of digital strategy, the company will aim to further improve the company's operating quality and management level; 5) Real estate securitization In terms of (REITs) strategy, the company strives to successfully launch public REITs and launch the first pre-REITs in the first three quarters of 2024.

Profit forecasting and valuation

Considering the divestment of part of the company's business, we lowered our 2024 net profit forecast by 3% to 2.49 billion yuan, an increase of 14.7% over the previous year. For the first time, we introduced the 2025 net profit forecast of 2.89 billion yuan, an increase of 15.8% over the previous year. The current stock price corresponds to 12.7 times/10.9 times P/E for 24/25. We maintain our outperforming industry rating and target price of 9.7 yuan, which corresponds to 15.2 times/13.1 times the 24/25 P/E, with 20.1% upside compared to the present.

risks

The implementation progress of the new business fell short of expectations, and the results of internal integration fell short of expectations.