Incident: The company released its 2023 annual report and 2024 quarterly report. In 2023, it achieved operating income of 9.81 billion yuan (yoy +21%), realized net profit of 414 million yuan (yoy +11%), and net profit of about 400 million yuan (yoy +7%) after deducting non-return to mother. In the first quarter of 2024, we achieved operating income of 2,314 billion yuan (yoy +7%), net profit attributable to mother of about 52 million yuan (yoy -32%), and net profit of non-return to mother of 50 million yuan (yoy -32%).
Comment:
In 2023, the revenue side showed business resilience. Due to the decline in net interest rates, profit growth was less than the revenue growth rate.
① In 2023, the company's revenue side grew by 21%, demonstrating the resilience of the company's operations and management. The 2023 personal account reform reduced residents' personal health insurance income, and the consumer's consumption behavior became cautious. The company's health insurance settlement revenue (mainly health insurance personal account revenue) accounted for 46% of the main business revenue from 2022 to 46% in 2023. At the same time, in 2023, the company opened a total of 389 pharmacies for outpatient clinics (accounting for only 8.14% of the number of stores), and the company's regional outpatient coordination has not yet broken through, and there are few outbound prescriptions, so the customer attraction dividends of the outpatient coordination policy have not yet been presented. ② In 2023, the company's net profit growth rate was 11%, and the growth rate of net profit to mother was slower than the revenue growth rate. The main reason was that the company's net profit margin fell 0.28 percentage points in 2023 (4.56% in 2023). On the one hand, the company's gross margin decreased by 0.26 percentage points (the company's gross margin was 35.88% in 2023), and on the other hand, the company's periodic expense ratio increased by 0.32 percentage points (29.89% for the company period in 2023).
Performance was pressured in the short term due to the impact of 2024Q1 external factors. ① The 2024Q1 account reform reduced personal health insurance revenue & weak customer attraction dividends for outpatient care coordination continued to affect the company's performance. The share of the 2024Q1 company's health insurance settlement revenue (mainly health insurance personal account revenue) of the main business revenue fell from 48% in 2023Q1 to 42% in 2024Q1. Combined with the high base pressure of 2023Q1, 2024Q1's revenue still grew by about 7%. Even though the 2024Q1 company faced multiple disruptions, the company still implemented the core business strategy of providing customers with extremely cost-effective services and products. 2024Q1 adjusted the variety structure based on customer health needs, and 2024Q1's branded sales increased 33% year-on-year, accounting for an increase of 3.76 percentage points, so the company's gross margin increased 1.75 percentage points year over year (gross margin in 2023 was 34.36%). ② The net profit of the 2024Q1 company fell 32% year on year, mainly due to the company's net interest rate falling 1.24 percentage points year on year (the net profit margin of the 2024Q1 company was 2.24%). Among them, the decline in net interest rates was due to the increase in expenses during the rigid period of new stores. 2024Q1 stores had a net year-on-year increase of 1,071 stores (yoy +26%), and were basically newly opened stores and acquired stores in the consolidation phase. The expenses of the 2024Q1 company increased by about 19.98% year-on-year during the period, and the fee rate for the period increased 3.47 percentage points year over year (31.56% during the 2024Q1 period).
At the end of 2023, the number of stores exceeded 5,000, and equity incentives may stimulate new enterprise vitality: ① The number of company stores reached 5116 in 2023, with a layout of 6 provinces and cities (Yunnan, Hebei, Chongqing, Liaoning, Sichuan, and Guangxi). The store size is comparable to that of leading listed companies in the end of 2020. For example, the number of direct stores in Yifeng Pharmacy at the end of 2020 was 5,356 (the number of direct-run stores reached 10,264 at the end of 2023), the number of direct-run stores for ordinary people at the end of 2020 was 4892 (9,180 direct-run stores at the end of 2023). At the end of 2020, the number of directly managed stores in Osanbayashi was 5,705 (the number of directly-managed stores reached 9,909 at the end of 2023). We believe that with the implementation of the company's “self-building+merger and acquisition” two-wheel drive expansion strategy, the total number of the company's stores is expected to exceed 10,000 in the future. ② According to the company's equity incentive plan, the 2024 performance assessment target is net profit not attributable to mother (the amount affected by share payments under this incentive plan) to increase by no less than 15% compared to 2023, no less than 36% in 2025 compared to 2023, and no less than 60% increase in 2026 compared to 2023. We believe that the implementation of equity incentives will help to fully motivate employees, combine the company's refined management and continuous promotion of professional services, and the company's future performance is expected to continue to be achieved.
Profit forecast: We expect the company's revenue for 2024-2026 to be 10.98 billion yuan, 13.808 billion yuan, and 17.459 billion yuan respectively, with year-on-year growth rates of 21%, 26%, and 26% respectively, and realized net profit to mother of 493 million yuan, 604 million yuan, and 751 million yuan, respectively, up 19%, 23%, and 24% year-on-year respectively, corresponding to the current stock price PE, which is 13 times, 10 times, and 8 times, respectively.
Risk factors: Increased competition in the retail pharmacy market, outpatient coordination policy customer promotion dividends continue to fall short of expectations, store expansion falls short of expectations, unsuccessful mergers and acquisitions integration, and risk of impairment of goodwill.