Introduction to this report:
The effect of the Torch Plan in increasing gross margin is obvious. The revenue slowdown is mainly related to factors such as a high base, low number of mergers and acquisitions, and store closures. It is expected to gradually pick up in 2024, and the performance is basically in line with expectations.
Key points of investment:
Maintain an increase in holdings rating. 2023 revenue of $22.437 billion (+11.21%), net profit not attributable to mother of $844 million (+14.68%). 2024Q1's revenue of 5.539 billion yuan (+1.81%), net profit not attributable to mother was 311 million yuan (+10.35%), which was basically in line with expectations. Maintain the 2024-2025 EPS forecast of 1.91/2.31 yuan, and add the 2026 EPS forecast of 2.79 yuan. Referring to comparable company valuations, considering the better results of internal reforms, the 2024 PE21X was given, and the target price was raised to 40.11 yuan to maintain the holdings increase rating.
The gross margin increased markedly, demonstrating the effects of the reforms. Starting in 2023, the company increased its gross profit margin through the Torch Plan, achieving good results. Under the circumstances of an increase in the overall revenue share, the 2023/2024Q1 retail gross margin was +1.13/+2.2pct, respectively. The results of the reform were good, and there is still room for further improvement in the future.
2024Q1 revenue growth has slowed in stages. Mainly: ① The growth rate of old stores is slowing down under a high base; ② the number of self-built stores is in line with expectations, but revenue contribution is limited; considering the high valuation of the primary market and the phased slowdown in mergers and acquisitions, 331/6 new mergers and acquisitions were added in 2023/2024Q1, compared with Yifeng 559/166 and Dashenlin 750/68, which is small in size and contributed less to current revenue; ③ Considering the improvement in internal operating efficiency and the increase in the growth rate of old stores, the closure of many old stores with poor profitability from 2023 is also expected to have an impact on revenue growth. Controllable; ④ Some traditional wholesale Due to the low gross margin of the business and the company's active speed control, the revenue from the wholesale business remains flat, but the franchise business is still expected to perform well.
Maintaining a relatively fast store opening speed, outpatient coordination is expected to contribute to the increase. In 2023, 3,388 stores were opened, 1471/331/1586 self-building/mergers and acquisitions/franchises respectively, and 642 2024Q1 stores were opened. The opening speed was relatively fast. As of 2024Q1, the total number of stores was 14,109. The number of interchangeable co-ordinated stores reached 3,338, accounting for 30.67% of direct-run stores, and is expected to continue to increase the company.
Risk warning: Market competition increases risk, and the outflow of prescriptions falls short of expectations.