Revenue grew steadily and profitability gradually increased, maintaining that the “buy” rating company achieved revenue of 22.437 billion yuan in 2023 (+11.21% year over year, all the figures below); net profit to mother of 929 million yuan (+18.35%); net profit after deducting non-return to mother of 844 million yuan (+14.68%). 2024Q1 achieved revenue of $5,539 million (+1.81%); net profit attributable to mother of $321 million (+10.27%); net profit after deducting non-return to mother of $311 million (+10.35%). In terms of profitability, gross margin was 32.55% (+0.67pct) in 2023, and net margin was 5.01% (+0.17pct). On the cost side, the 2023 sales expense ratio was 20.35% (+1.03pct); the management expense ratio was 5.29% (-0.20pct); and the financial expense ratio was 0.79% (-0.36pct).
We are optimistic about the company's dominant market, weakening market network expansion, and coordinated store development, raising 2024-2025 and adding a profit forecast for 2026. The estimated net profit for 2024-2026 is 11.18/13.50/1,640 billion yuan, respectively (originally estimated 2024-2025 is 11.10/1,334 billion yuan), EPS is 1.91/2.31/2.80 yuan, and the PE corresponding to the current stock price is 17.5/14.5/11.9 times, maintaining a “buy” rating.
Store expansion is progressing steadily, expanding advantageous regions and sinking market layout. The company rapidly expanded using the “Four Carriage” three-dimensional model of direct management, mergers and acquisitions, and alliances. In 2023, 3,388 new stores were added, including 1,802 new direct-managed stores (1,471 self-built, 331 mergers and acquisitions), and 1,586 new franchised stores. As of 2024Q1, the company had 14,109 stores, including 9,470 direct-run stores and 4,639 franchise stores. The company continues to focus on dominant provinces and declining market layout. Of the new stores added in 2023, the dominant provinces and key cities accounted for 86% of the new stores, while prefecture-level cities and below accounted for 78%.
Outpatient coordination accelerates implementation, and digitalization empowers the development of new retail
In 2023, the company actively promoted the implementation of outpatient co-ordinated store qualifications and explored co-ordinated business models. 4,262 stores were launched throughout the year, including 3,059 stores (including 2,756 directly managed) that also had mutual brushability capabilities. The increase in the convenience of coordinating drug purchases also increased both the number of visitors and sales. Furthermore, the company continues to promote the digital transformation strategy, driving the rapid development of new retail businesses by consolidating the data foundation, deepening supply chain empowerment, and upgrading informatization in all fields. The annual sales volume of online channels is about 2 billion yuan (+38%).
Risk warning: The risk of policy changes, increased market competition, and the pace of store expansion falls short of expectations.