Incidents:
The company released its 2023 annual report and 2024 quarterly report. In 2023, it achieved revenue of 9.081 billion yuan, up 20.84% year on year; net profit to mother of 414 million yuan, up 10.72% year on year; net profit after deducting 399 million yuan, up 7.26% year on year. In the first quarter of 2024, revenue was 2,314 billion yuan, up 6.79% year on year; net profit to mother was 52 million yuan, down 31.51% year on year; net profit after deduction was 50 million yuan, down 32.32% year on year.
The company announced the 2024 Restricted Stock Incentive Plan (draft), which plans to grant 1,7649 million shares to 261 incentive recipients. The assessment requirements are based on net profit deducted from non-mother's income in 2023, and the net profit growth rate for 2024/2025/2026 should not be less than 15%/36%/60%, respectively.
Actively accept the outflow of prescriptions, increasing the share of proprietary Chinese and Western medicines
The company firmly serves the health needs of customers and actively undertakes the incremental business brought about by the long-term trend of outflow of in-hospital customers. In 2023, the company sold a total of 6.477 billion yuan, up 27.53% year on year, accounting for 75.87% of revenue, up 3.95pp; sales of Chinese herbal medicines amounted to 367 million yuan, up 27.38% year on year; sales of health food were 453 million yuan, up 9.21% year on year; sales of medical devices were 701 million yuan, down 9.30% year on year.
The number of stores is rapidly increasing, and online business is being vigorously developed
In 2023, the company further improved the network layout of stores in 6 provinces and cities, and consolidated the operating capacity of physical stores through endogenous growth in new and old stores. In 2023, the company had a net increase of 1,061 stores, including 799 self-built stores, acquired 272 stores, closed 10 stores, and reached 5,116 stores, an increase of 26.17% over the previous year. Focusing on customer ubiquity and higher requirements for convenience, the company continued to improve the physical store layout and expand the online service network based on this. In 2023, online business sales reached 2.164 billion yuan, an increase of 54.58% over the previous year, accounting for 23.83% of revenue.
Profit Forecasts, Valuations, and Ratings
Considering the uncertainty of industry development during the policy transition period, we expect the company's revenue for 2024-2026 to be 112.51/140.68/17.693 billion yuan, respectively, with corresponding growth rates of 23.90%/25.19%/25.61%, respectively; net profit to mother is 479/568/674 million yuan, respectively, corresponding growth rates of 15.65%/18.43%/18.78%, respectively. The company is deeply involved in Yunnan, based in the southwest, and developing nationwide. Referring to comparable company valuations, the company was given 16 times PE in 2024, corresponding to a target price of 59.51 yuan, maintaining a “buy” rating.
Risk warning: prescription outflow falls short of expectations; declining profitability; risk of policy changes; increased market competition; store expansion falls short of expectations.