Incidents:
The company recently released its 2023 annual report and 2024 first quarter report. During the reporting period, revenue was $22.588 billion (+13.59%), including retail revenue of $20.85 billion (+12.00%), wholesale revenue of $1,892 billion (+39.23%), net profit attributable to mother of $1,412 billion (+11.90%), net profit not attributable to mother of $1,362 billion (+10.92%). 2024Q1 revenue of 5.971 billion yuan (+13.39%), net profit of 407 million yuan (+20.89%), net profit of non-return of 399 million yuan (+24.26%); 23Q4 operating income of 6.70 billion yuan (+2.47%), net profit to mother of 413 million yuan (-6.61%), net profit of non-return to mother of 395 million yuan (-0.09%).
Comment:
The “new opening+merger and acquisition+franchise” expansion model helps the store expand steadily. During the reporting period, the company adhered to the development strategy of “regional focus and steady expansion” and was deeply involved in the Central and South China East China and North China markets. By the end of 2023, the total number of the company's stores was 13,250 (including 2,986 franchisees), a net increase of 2,982 stores compared to the end of the previous period. As of 2024Q1, the company had 13,920 stores (including 3157 franchisees), a net increase of 670. The number of stores in core regions continued to expand, driving revenue growth in various regions. 2024Q1 revenue in Central and South China, East China, and North China increased by 12.61%, 10.15%, and 19.73%, respectively.
Actively explore online and offline omni-channels to undertake a new model of prescription outflow. In the offline field, the company relies on hospital side stores to actively deploy DTP specialty pharmacies, “dual channel” medical insurance designated locations, and co-ordinated pharmacies for special chronic diseases and outpatient care. During the reporting period, the company had 675 hospital side stores (within a straight line distance of 100 meters) and 305 DTP specialty pharmacies, including 246 dual-channel medical insurance stores, opened 4200+ outpatient co-ordinated medical insurance pharmacies, operated 250+ drugs negotiated under national health insurance agreements, 800+ types of hospital prescriptions, and established deep partnerships with 150+ professional prescription drug suppliers. In the online field, it connects with provincial and municipal medical insurance and health prescription distribution platforms 10+, and directly or indirectly undertakes prescription circulation services for 100+ tertiary hospitals and Internet hospitals.
The digital transformation has achieved remarkable results, and member benefits have been continuously upgraded. The company takes customers as the core, continuously upgrades the member rights system, and creates a personalized and intelligent marketing and service system for members through hierarchical management of members and refined operation of the membership system. In 2023, the cumulative number of registered members reached 87.1 million, up 23.21% year on year. Member sales accounted for 77.4%, up 2.89% year on year.
We believe that by improving operational efficiency through refined management, the company's performance is expected to continue to grow.
Profit forecast and investment advice: The company is a leading pharmacy chain. The annual report and first-quarter results are in line with expectations. We basically maintain our previous forecast. The company is expected to achieve revenue of 273.59/328.96/39.992 billion yuan in 2024-2026 and net profit of 17.88/21.78/2,683 billion yuan, corresponding to earnings per share of 1.77/2.16/2.65 yuan/share. Comprehensive industry average valuation level maintains the company's “buy” investment rating.
Risk warning: downside risk of the economy, risk of performance falling short of expectations, risk of policy changes, etc.