23FY&1Q24 results meet our expectations
The company announced its 2023 and 1Q24 results: for the full year of 2023, it achieved revenue of 22.44 billion yuan, a year-on-year increase of 11.2%, and net profit to mother of 18.4%; 1Q24 revenue of 5.54 billion yuan, up 1.8% year on year, net profit to mother of 320 million yuan, up 10.3% year on year, net profit after deducting non-return net profit of 310 million yuan, an increase of 10.4% year on year. The results are in line with our expectations.
Development trends
Revenue and profit growth was steady in 2023, and gross margin increased markedly in 1Q24. In 2023, the company achieved revenue of 22.44 billion yuan (+11.2% year over year) and net profit to mother of 9.3 billion yuan (+18.4% year over year), all of which maintained steady growth in revenue and profit. With 1Q24 revenue of 5.54 billion yuan (+1.8% YoY) and a gross profit margin of 35.2% (YoY +2.2ppt), we expect gross margin to increase significantly year-on-year for the full year of '24. By product, in 2023, the company's revenue from proprietary Chinese medicines was 17.63 billion yuan (+12.6% year on year), revenue from traditional Chinese medicine was 1.66 billion yuan (+18.2% year on year), revenue from non-pharmaceuticals was 3.15 billion yuan (+1.1% year on year); in 1Q24, revenue from Chinese and Western proprietary medicines was 4.51 billion yuan (+7.8% year over year), and revenue from traditional Chinese medicines and non-pharmaceuticals decreased slightly year on year.
The “four carriages” model expanded rapidly, and “broad coverage+regional focus” increased market share. The company continues to expand the “direct management+merger+acquisition+alliance+alliance” four-wheel model. By the end of 2023, it had a total of 13,574 stores, including 9,180 directly managed and 4,394 franchised; 642 new stores were added in 1Q24, of which 357 were directly managed and 285 joined. In terms of acquisitions, 2023FY&1Q24 acquired 382 pharmacies for a total amount of 970 million yuan. In terms of alliances, as of 1Q24, the number of company alliance stores reached 13,500+, and the total retail scale exceeded 16 billion yuan. By the end of 2023, the company's stores had covered 18 provinces and over 150 prefecture-level cities across the country, and focused on expanding 11 advantageous provinces. 4 provinces ranked first in terms of market share. At the same time, the company continues to explore the sinking market. By the end of 2023, the proportion of stores in prefecture-level cities and below had reached 76%.
Digital transformation continues to advance, and the refined operation of “human and warehouse” helps high-quality development. The company continues to accelerate its digital transformation, investing 130 million yuan in R&D in 2023, and increasing the ROI of digital projects. At the same time, the company has always insisted on the refined operation of the “human warehouse”. 1) Member operation strategy continues to advance: by the end of 2023, the total number of members reached 86.35 million, and the number of active members accounted for 75% of member sales; 2) Steady promotion of its own brands: by the end of 2023, the number of its own brand products was about 600, and its own brand sales accounted for 19.6% (+0.9% year-on-year); 3) Specialized pharmacy construction and expansion in an orderly manner: By the end of 2023, the company had 1,584 stores with designated qualifications for “outpatient chronic diseases” (+531 compared to the previous year), “dual channel” shop 280 Home (YoY +53), 176 DTP Pharmacies (YoY +14).
Profit forecasting and valuation
The 2024 EPS forecast was maintained at 1.91 yuan, and the 2025 EPS forecast was first introduced at 2.33 yuan. The current stock price corresponds to 17.5/14.4 times P/E for 2024-25. Maintaining an industry rating and target price of 41.8 yuan, corresponding to 21.9/18.0 times P/E in 2024-25, there is room for an increase of 24.9% compared to the present.
risks
Store expansion progress falls short of expectations; industry policy risks; medical emergencies.