Core views:
The performance was in line with expectations, and the profit side performed well. The company released its annual report for the year 23 and the quarterly report for '24, and achieved revenue of 22.437 billion yuan (yoy +11.21%), net profit to mother of 929 million yuan (yoy +18.35%), and net profit after deducting non-return to mother of 844 million yuan (yoy +14.68%) in 23. Looking at a single quarter, the company achieved operating income of 6.396 billion yuan (yoy -0.05%), net profit of 212 million yuan (yoy +21.17%), net profit after deducting 198 million yuan (yoy +17.89%); 24Q1 achieved operating income of 5,539 million yuan (yoy +1.81%), net profit due to mother of 321 million yuan (yoy +10.27%), and net profit of 311 million yuan (yoy +10.35%).
Outpatient co-ordinated health insurance pharmacies are expanding rapidly, and the revenue side has increased markedly. In '23, the company added 3,388 stores (1471/331/1586 self-built/ mergers and acquisitions/franchised stores). By the end of '23, the company had 13,574 stores (9180 direct-run stores and 4,394 franchised stores). In '23, the company completed the quality of outpatient financing for 4,262 stores (including 740 franchisees), and the number of visitors and sales included in the stores have increased markedly. In Q1 '24, the company added 642 new stores (351/6/285 self-built/ acquisied/franchised stores). As of Q1 '24, the company had 14,109 stores (9740 directly managed, 4,639 joined), including 4,673 outpatient co-ordinated stores, of which directly managed stores accounted for 39.78% of outpatient co-ordinated stores.
Specialized construction continues to advance, and the new retail business is developing rapidly. As of '24, the company had 1,595 outpatient and chronic disease stores, 325 dual-channel stores, and 176 DTP pharmacies. Directly managed medical insurance stores accounted for 89.13%, effectively handling the outflow of prescriptions. As of 24Q1, the company had 1,1263 O2O stores. Online channel sales increased 38%/42% year-on-year in Q1 in '23 and '24, respectively, with significant revenue from digital-driven channels.
Profit forecasting and investment advice. The company's 24-26 results are expected to be 1.94, 2.34, 2.79 yuan/share, respectively, corresponding to PE17.23/14.28/11.99x. Referring to comparable company valuations, we think it is appropriate to give the company a reasonable valuation of 20xPE in 2024, corresponding to a reasonable value of 38.9 yuan/share, and maintain a “buy” rating.
Risk warning. The competitive landscape has deteriorated; policy risks such as collection; and the outflow of prescriptions has not progressed as expected.