Incidents:
The company recently announced its 2023 annual report and 2024 quarterly report. In 2023, the company's revenue was 24.531 billion yuan (+15.45%), net profit attributable to mother was 1.116 billion yuan (12.63%), and net profit of non-return to mother was 1,141 million yuan (+13.03%). 2023Q4's revenue was 6.808 billion (+5.86%), net profit attributable to mother - $08 billion, net profit not attributable to mother - $0.23 billion. 2024Q1 has operating income of 6.752 billion yuan (+13.54%), net profit of 398 million yuan (-19.79%), net profit of non-return to mother of 396 million (-20.4%).
Comment:
Store expansion: Diversified store expansion maintains high growth. There was a net increase of 4,029 stores during the reporting period. Among them, 1,382 self-built stores were added, 750 stores were acquired, 2158 franchised stores, and 261 were closed.
By the end of 2023, the company had 14074 stores (including 4165 franchise stores), with a total operating area of 809,470 square meters, focusing on the franchise strategy. During the reporting period, the density of self-built stores increased in the core regions of South China, and the northern and southwestern regions adopted mergers and acquisitions. Among them, there were 8,925 stores in South China (+27.5%), accounting for 63.41%; 2,388 stores in the North and Southwest regions (+143.18%), accounting for 16.97%. In 2023, the company had a total of 9,909 direct-run chain stores, and 9,100 pharmacies have obtained various “medical insurance designated retail pharmacies”. Among them, 1,619 new medical insurance stores were added from January to December 2023. The total number of medical insurance stores accounted for 91.84% of the total number of pharmacies directly managed by the company. Stores are expected to maintain their growth momentum in 2024 and are expected to achieve steady profit growth.
Key indicators: Steady improvement in floor efficiency and human efficiency. The average monthly floor efficiency including tax was 2269.87 yuan/square meter in 2023, and 2460.58 yuan/square meter in 2022. The average monthly floor efficiency decreased slightly.
Product regulations: In 2023, the company's retail business achieved revenue of 20.509 billion yuan (+6.58%), gross profit margin of 38.15% (-0.28BP); wholesale business achieved revenue of 3.423 billion yuan (+122.46%), gross profit margin of 11.24% (+0.02BP). The company's overall gross margin was stable in 2023. Looking at the company's core business (retail business segment), the gross margin of the retail business declined slightly. Looking at specific product regulations, the gross margin of Chinese ginseng medicinal herbs alone has increased. Proprietary Chinese Medicine achieved 17.699 billion yuan (+16.62%), gross profit margin 31.16% (-2.09BP), Chinese ginseng medicinal herbs achieved 2,974 billion (+15.04%), gross profit ratio 42.88% (+0.55BP), non-pharmaceuticals reached 3.259 billion (+7.93%), gross profit margin 43.52% (-3.70BP);
The 2024Q1 company achieved revenue of 6.752 billion dollars (+13.54%) and operating costs of 6.195 billion dollars in a single quarter. In 2023, benefiting from the large-scale effect brought about by the surge in franchise stores, the company's cost management efficiency was improved, and the period expense ratio was reduced: of these, the sales expense ratio was 22.92% (-1.36BP) and the management expense ratio was 5.16% (-0.41BP). We believe that in line with the trend of volume procurement policies, the company actively builds an efficient supply chain system with the triple dimension of “ownership+merger and acquisition+franchise”. While reducing costs and increasing efficiency, the traditional Chinese medicine brand is launched with its own characteristics of Chinese ginseng and ginseng, combined with specialized chronic disease management human resources, to achieve a differentiated strategy, reinforce its leading position in the industry, and enable performance to continue to rise.
Profit forecast and investment advice: The company is expected to achieve revenue of 298.11/358.23/42,934 billion yuan in 2024-2026, and net profit to mother of 14.16/16.91/210 billion yuan, corresponding earnings per share of 1.24/1.49/1.84 yuan/share, corresponding PE is 18/15/12 times. Refer to the same industry valuation to maintain a “buy” rating.
Risk warning: industry policy risk, risk of consumption falling short of expectations, risk of performance falling short of expectations.