Introduction to this report:
2024Q1's performance was affected by a high base and short-term losses in newly opened stores. The company issued a new equity incentive plan to demonstrate confidence in long-term steady development and maintain an increase in holdings rating.
Key points of investment:
Maintain an increase in holdings rating. In 2023, revenue of 9.081 billion yuan (+20.84%) was achieved after deducting non-attributable net profit of 399 million yuan (+7.26%); 2024Q1 realized revenue of 2,314 million yuan (+6.79%) and net profit of 504 million yuan (-32.32%). 2024Q1 The 2024-2025 EPS forecast was lowered to 3.55/4.31 yuan (originally 3.73/4.44 yuan), and the 2026 EPS forecast was added at 5.13 yuan. Maintain the target price of 60.19 yuan, corresponding to PE17X in 2024, and maintain an increase in holdings rating.
The high 2024Q1 base and short-term losses in newly opened stores led to a slowdown in profits. 2024Q1 sales/management/financial expense ratios were +3.21/+0.3/-0.03pct, respectively, mainly due to ① the company added 1071 new stores in 2023 (799/272 self-building/mergers and acquisitions, respectively). The growth rate of opening stores was fast and mainly self-built stores. The upfront cost of opening new stores was large, and the sales scale was still climbing, leading to a decline in net interest rates; ② The company's main regional coordination was slow to make up for losses caused by individual account reforms, so the share of health insurance revenue fell from 52% in 2022 to 2024Q42 % also had an impact on performance.
The long-term business trend is steady. ① Seize the opportunity to expand within and outside the province. As of 2024Q1, the number of stores reached 5,236, the 2023/2024Q1 growth rate reached 26%/25%, respectively. The proportion of Yunnan stores fell to 54%, and there was rapid development outside the province. ② The ability to integrate has been verified. Since the acquisition of Tang Ren, Hebei and Liaoning have developed rapidly. In 2023, Tang Ren's revenue was 1.802 billion yuan (+10%), and net profit was 120 million yuan (+10%), which exceeded the gamble.
③ Through in-depth cooperation with manufacturers to actively seek resources, 2024Q1 Chinese and Western proprietary medicines accounted for 77.29% (+3.14pct) of revenue, increasing gross margin by 3.1 pct; personal care, OEM, etc. are also expected to develop rapidly.
Motivation goals are steady. At the same time, the company announced a new incentive plan. The net profit growth rate for 2024-2026 is 15%/18%. The operating target is steady, and revenue and stores are expected to maintain faster growth.
Risk warning: The outflow of prescriptions fell short of expectations, and the expansion of stores fell short of expectations.