Incidents:
1) The company released its 2023 annual report, achieving operating income, net profit attributable to mother, and net profit excluding non-return to mother of 225.88/14.12/1,362 billion yuan, respectively, or +13.59%/11.90%/10.92% YoY; net cash flow from operating activities was 4.624 billion yuan, +17.94% YoY; EPS (basic) 1.40 yuan. The results are in line with market expectations.
2) The company issued a profit distribution plan for 2023, distributed a cash dividend of 0.5 yuan (tax included) to all shareholders, and transferred 0.2 shares per share from the capital reserve fund to all shareholders, with a dividend payment rate of 35.79%.
3) The company released its 2024 quarterly report, achieving operating income, net profit attributable to mother, and net profit excluding non-return to mother of $59.71/4.07/399 billion, respectively, or +13.39%/20.89%/24.26% year-on-year. Net cash flow from operating activities was $650 million, or -49.56% YoY; EPS (basic) $0.40. The results are in line with market expectations.
Comment:
Steady growth in performance under a high base, excellent cost control and profitability. 4Q23 achieved revenue, net profit attributable to mother, and net profit excluding net profit of 6.7.00/4.13/395 million yuan, compared with +2%/-6%/-9%. The decline in profit was related to the high sales base of the four types of drugs in the same period last year. The gross profit margin of sales in 2023 was 38.21%, -1.32pp year on year, mainly due to the increase in the share of wholesale business revenue, and retail/wholesale business gross margin was -0.85/-0.11pp, respectively; net sales profit margin was 7.00%, -0.18pp, which remained stable, thanks to effective control of expenses during the period. Among them, sales/management/finance/R&D expense ratios were -0.24/-0.29/-0.15/+0.02pp, respectively. It is rare for 1Q24 to achieve double-digit growth in revenue and profit on a high basis. The gross margin of 1Q24 sales was 39.25%, -0.42pp; the net margin was 7.47%, +0.26pp year on year, and profitability remained high. In terms of business structure, the 1Q24 retail business achieved revenue of 5.268 billion yuan, +10.50% year-on-year, and gross margin of -0.13pp; the wholesale business achieved revenue of 508 million yuan, +36.99% year-on-year, and gross margin of -0.80pp year-on-year, continuing the trend of rapid development over 23 years.
The store expansion target was basically achieved in '23, and the number of franchised stores grew rapidly. The company adheres to the development strategy of “regional focus, steady expansion” and the business policy of “key penetration and in-depth marketing”, and the joining momentum is strong. By the end of 2023, the total number of stores was 13,250 (10264 direct-run stores, +24%; 2986 franchised stores, +52% YoY), with 3196 new stores added throughout the year, including 1,613 self-built stores, 559 mergers and acquisitions, 1,024 new affiliate stores, 61 relocated stores, and closed 153 stores, a net increase of 2,982 over the end of 2022.
The company insists on deepening encryption in advantageous regions. At the end of 2023, the number of stores in Central and South China, East China, and North China increased net by 1,322/927/733, respectively, compared to the beginning of the year. Revenue growth in Central and South China, East China, and North China in 2023 was 17%/7%/27%, respectively.
The new retail system is operating steadily, and the outflow of hospital prescriptions is handled through all channels. The company continues to promote the construction of new retail systems based on membership, big data, internet medical care, and health management. By the end of 2023, the company's O2O had launched more than 9,000 direct-run stores and more than 600 24-hour distribution stores, covering all major cities of the company offline. 2023 O2O+B2C revenue accounted for 8.0% of total revenue, -0.8pp. Among them, O2O business sales revenue was 1,399 million yuan, +3% year over year; B2C sales revenue was 419 million yuan, up 8% year on year. The company is actively exploring a new model of accepting hospital prescriptions online and offline. On the online side, it has laid out electronic prescription circulation services. Currently, it has connected with more than 10 provincial and municipal medical insurance and health prescription circulation platforms, and directly or indirectly undertakes prescription circulation services for more than 100 tertiary hospitals and Internet hospitals; on the offline side, it relies on hospital side stores to deepen cooperation with relevant manufacturers and actively introduce types of national health insurance negotiations. By the end of 2023, the company had 675 hospital side stores and 305 pharmacies specializing in DTP medical insurance. 246 stores, outpatient clinics opened Coordinated more than 4,200 medical insurance pharmacies, managed more than 250 drugs negotiated under national health insurance agreements, more than 800 kinds of prescriptions were exported from hospitals, and established deep partnerships with more than 150 professional prescription drug suppliers.
Profit forecast, valuation and rating: Taking into account the slowing recovery in consumption, the 24-25 net profit forecast was lowered to 17.61.179 billion yuan (down 5%/5% from the previous forecast), and the net profit forecast for the additional 26 years was 2,717 billion yuan, up 25%/24%/25% year on year, and PE corresponding to the current price was 25/20/16 times. The company is a leading company with outstanding refined management capabilities in retail pharmacies. It relies on self-construction and mergers and acquisitions to achieve rapid expansion, innovate strategic layout and business models, and maintain a “buy” rating.
Risk warning: Store expansion progress falls short of expectations; merger and acquisition integration falls short of expectations; impact of policies such as collection.