Core views:
The performance was in line with expectations, and the profit side grew faster in Q1 in '24. The company released its annual report for the year 23 and the quarterly report for '24, and achieved revenue of 22.588 billion yuan (yoy +13.59%), net profit to mother of 1,412 billion yuan (yoy +11.90%), and net profit after deducting non-return to mother of 1,362 billion yuan (yoy +10.92%).
Looking at a single quarter, the company achieved operating income of 6.7 billion yuan (yoy +2.47%), net profit of 413 million yuan (yoy -5.81%), net profit of 395 million yuan (yoy -9.25%); 24Q1 achieved operating income of 5.971 billion yuan (yoy +13.39%), net profit of 407 million yuan (yoy +20.89%), and net profit of 399 million yuan (yoy +24.26%). In 2023, the company paid a dividend of 0.50 yuan per share (tax included) to all shareholders, adding 2 shares for every 10 shares.
Stores are expanding steadily, and outpatient co-ordinated medical insurance pharmacies are expanding rapidly. In '23, the company had a net increase of 2,982 stores, of which the number of self-built/ merger/ acquisition/ relocation/ closed stores was 1613/559/1024/61/153, respectively. By the end of 2023, the company had 13,250 stores (10,624 direct-run stores and 2,986 franchised stores), accounting for 87.39% of directly-managed stores. By the end of 2023, the company had 675 hospital side stores, 305 DTP specialty pharmacies, 246 dual-channel medical insurance stores, and opened more than 4,200 outpatient co-ordinated medical insurance stores, effectively handling the outflow of prescriptions. In Q1 '24, the company had a net increase of 670 stores. As of Q1 '24, the company had a total of 13,920 stores (10,763 directly managed, 670 franchised).
The franchise business is developing rapidly. By business segment: (1) The company's retail business/wholesale business achieved revenue of 20.85 billion yuan (yoy +12%)/1,892 billion yuan (yoy +39.23%) in 23 years, and the franchise business developed rapidly. (2) The company achieved revenue of 17.095 billion yuan (yoy +15.93%)/2.80 billion yuan (yoy +23.30%)/2,803 billion yuan (yoy -2.30%) in 23 years, with gross margins of -0.45/+0.33/ -6.02pct, respectively.
Profit forecasting and investment advice. The expected 24-26 results are EPS1.76/2.19/2.70 yuan/share, corresponding to PE24.46x/19.61x/15.95x, respectively. We maintain the view that the company has a reasonable value of 53.8 yuan/share (corresponding to the 24-year PE is 31x) and maintain the “buy” rating.
Risk warning. The competitive landscape has deteriorated; policy risks such as collection; and the outflow of prescriptions has not progressed as expected.