Core views:
The 23 annual report and 24 quarterly report were released, and the results were in line with expectations. The company achieved revenue of 24.531 billion yuan (yoy +15.45%), net profit attributable to mother of 1,166 billion yuan (yoy +12.63%), and net profit after deducting non-return to mother of 1,141 billion yuan (yoy +13.56%). Looking at a single quarter, the company achieved operating income of 6.808 billion yuan (yoy +5.87%), net profit to mother of 0.08 billion yuan (yoy -106.99%), net profit after deducting non-return to mother of 23 million yuan (yoy -125.11%); 24Q1 achieved operating income of 6.752 billion yuan (yoy +13.54%) and net profit of 398 million yuan (yoy -20.40%).
Stores continue to expand, and self-construction is being accelerated every season. In 2023, the company built 1382/750/2158/261 stores and a net increase of 4029 stores. By the end of 2023, the number of company stores had reached 1,4074 (9909 direct-run stores, 4165 franchised stores), including 227 DTP pharmacies, 9100 designated personal account medical insurance stores, and 1985 designated stores with various types of co-ordinated reimbursement, including 1,281 outpatient co-ordinated stores, 574 dual-channel designated stores, and specific slow stores 1021 houses. In Q1, the company built 396/68/445/68 stores and closed 396/68/445/68 stores respectively, with a net increase of 841 stores. As of Q1, the company had 14,915 stores (including 10,305 directly-managed stores and 4610 franchised stores).
Expansion outside the province went smoothly, and the franchise business developed rapidly. In 2023, the company's revenue side in South China/Central China/East China/Northeast China, North China, Southwest China and Northwest China increased by 7.86/12.84/21.38/ 66.84%, respectively. Revenue growth outside the province was relatively fast, and the development of all regions was basically balanced. In terms of franchise business, the company uses direct franchise to rapidly deploy in weak regions, driving rapid revenue growth in franchise and distribution business. Revenue increased 122.46% year-on-year in 2023.
Profit forecasting and investment advice. The company's 24-26 results are expected to be 1.24/ 1.53/1.90 yuan/share, respectively, corresponding to PE17.50/14.26/11.45x. Referring to comparable company valuations, we believe it is possible to give the company a reasonable valuation of 20xPE in 24 years, corresponding to a reasonable value of 24.9 yuan/share, maintaining a “buy” rating.
Risk warning. The competitive landscape has deteriorated; policy risks such as collection; and the outflow of prescriptions has not progressed as expected.