Event: The company released its 2023 annual report and 2024 quarterly report.
Throughout 2023, the company achieved operating income of 150,140 billion yuan/ +6.92%, net profit of 2,174 billion yuan/ +4.27%, after deducting non-return net profit of 1,960 billion yuan/ +13.06%.
The main reason for the continued increase in the company's revenue and net profit after deduction is the steady growth of the pharmaceutical distribution business, and the continuous rapid growth of high-margin businesses such as CSO, new pharmaceutical retail and franchise, pharmaceutical industry and OEM. The net cash flow from the company's operating activities in '23 was 4.748 billion yuan/ +19.10%, and operating cash flow continued to improve.
In the first quarter of 2024, the company achieved operating income of 40.472 billion yuan/ -3.85%, net profit of 538 million yuan/ -4.19%, after deducting net profit of 522 million yuan/ -9.01%. The slight year-on-year decline in the company's revenue and profit in the first quarter was mainly due to the high base for the same period last year.
The new strategy is progressing steadily, and multiple growth poles continue to gain strength.
In 2023, the company continued to focus on the “three new and two modernization” strategic layout, and new businesses continued to grow.
(1) In terms of new product strategy, the CSO business continued to build a second growth curve. The CSO business revenue for the full year of '23 was 19.584 billion yuan/ +46.01%, and gross profit of 2,789 billion yuan/ +52.45%. Among them, pharmaceutical CSO revenue was 10.696 billion yuan/ +60.82%, gross profit 2,267 billion yuan/ +54.83%, device CSO revenue 8.888 billion yuan/ +31.44%, gross profit 522 million yuan/ +42.91%. Industrial and self-produced OEM business revenue was $2,476 billion, and gross margin was 23.84%. Western medicine, traditional Chinese medicine, and OEM product lineup continued to expand.
(2) In terms of the new retail strategy, as of 2024Q1, the number of pharmacies directly managed and affiliated by Good Pharmacist reached 21,192, spread across 31 provinces, municipalities and autonomous regions across the country, achieving a grid layout. It is estimated that there will be more than 30,000 in 2025. In 2023, the company's sales revenue to franchise pharmacies reached 3.48 billion yuan/ +83.25%, Good Pharmacist B2C e-commerce general sales revenue of 1,225 million yuan/ +26.8%, and revenue from the out-of-hospital digital distribution business to end customers such as pharmacies, clinics and large-scale pharmaceutical retail e-commerce platforms reached 17.326 billion yuan.
(3) In terms of the new medical strategy, the company built a comprehensive clinic service platform with digital medical services as the core and integrated supply chain to enhance terminal control. Furthermore, in the Internet medical business field, the company comprehensively adjusted its business structure to achieve large-scale development of the Three Medical Community+ New Media Hospital Joint Service+ Internet Hospital Platform Construction. In 23, the company's Internet Healthcare Division achieved sales revenue of 156 million yuan.
(4) In terms of REITs strategy, the company plans to build a “public offering REITs+pre-REITs” multi-level real estate equity capital operation platform, revitalize the company's high-quality pharmaceutical logistics assets, and restructure the asset-light operation model. The company is actively promoting the issuance of pharmaceutical warehousing and logistics infrastructure REITs, which are expected to become the first public offering REITs in the domestic pharmaceutical industry, the first pharmaceutical warehousing logistics REITs, and the first public offering REITs for private enterprises in Hubei Province. The company officially submitted them to the National Development and Reform Commission in October 2023 The application materials are being reviewed by the National Development and Reform Commission.
Investment advice:
Buy-A investment rating, 6-month target price of 9.60 yuan. We expect the company's revenue growth rates from 2024 to 2026 to be 10.99%, 11.63%, and 11.09%, respectively, and the net profit growth rates will be 15.02%, 15.16%, and 13.16% respectively; for the first time, the 6-month target price is 9.60 yuan, which is equivalent to a dynamic price-earnings ratio of 15 times that of 2024.
Risk warning: Risk of policy changes in the pharmaceutical industry, CSO business progress falls short of expectations, digital transformation and upgrading results fall short of expectations, and REITs projects fall short of expectations.