Key points of investment
The revenue side grew steadily, and the profit side performed well. The company released the 2023 report and the 2024 quarterly report: in 2023, it achieved revenue of 22.437 billion yuan and net profit of 929 million yuan, up 11.2% and 18.4% year-on-year respectively; of these, the fourth quarter achieved revenue of 6.396 billion yuan and net profit to mother of 212 million yuan, with year-on-year changes of -0.1% and 21.2%, respectively. In 2024Q1, we achieved revenue of 5.539 billion yuan and net profit to mother of 321 million yuan, an increase of 1.8% and 10.3%, respectively. The company's overall operation is steady, and the profit side is impressive.
Focus on advantageous regions to speed up the sinking crypto market. 1) The number of stores exceeds 14,000. As of 2024Q1, the total number of the company's stores was 14,109, of which 9470 and 4,639 were directly managed and franchised stores respectively. In terms of opening new stores, 3,388 stores were added in 2023, including 1,802 directly managed stores (1,471 self-built, 331 mergers and acquisitions) and 1,586 joined; 642 new stores were added in 2024Q1, including 357 directly managed stores (351 self-built, 6 acquired) and 285 franchised stores. 2) Accelerate preparations for new stores. The company actively uses digital power to improve the efficiency of new stores. The average preparation cycle for new direct-run stores in 2023 is 40 days, which is 9 days shorter than in 2022. 3) Refining and deepening advantageous areas. In 2023, the top three provinces with the company's market share reached 11, including 4 provinces with the highest market share. 2024Q1, the company's stores in prefecture-level cities and below account for 76%. In a situation where the revenue of a single store is comparable, the cost of the 3-5 tier market is lower, and the company's profitability continues to increase.
The number of stores is being prepared at an accelerated pace, and the scale of the franchise and alliance business is expected to expand at an accelerated pace in 2024. 1) The number of franchised stores increased by nearly half. As of 2024Q1, the number of the company's franchisees was 4,639, with 1,586 and 285 new stores added in 2023 and 2024Q1, respectively. In 2023, the company's franchise stores grew by more than 50%, achieving revenue of about 2.2 billion yuan, a year-on-year growth rate of about 20%. 2) The alliance business is developing at a very high speed. As of 2024Q1, the company's alliance business involved more than 13,500 stores; of these, 12,000+ in 2023, the year-on-year increase is expected to be close to 140%. In 2023, the corporate alliance business achieved revenue of more than 240 million yuan, an increase of 25% over the previous year.
Actively promote overall implementation, and include a marked increase in sales in stores. As of 2024Q1, the company had 4,673 outpatient co-ordinated stores, of which direct-run stores accounted for nearly 40%; the number of stores where the company can interoperate (included in outpatient co-ordinated medical insurance management and can use Internet prescriptions) reached 3,338, accounting for 24% of the total number of stores, of which 30.7% were directly managed stores. Interchangeable stores have seen significant increases in both the number of visitors and sales. Of the 18 provinces where the company operates directly, there are 16 provinces where policies have already been implemented, of which 9 are interchangeable; 7 have published but have no Internet prescription policies; and 2 have not been implemented. In 2024, along with the gradual implementation and improvement of regional coordination policies, the company is expected to accelerate the acceptance of outflow prescriptions.
Investment advice: The company's overall performance is in line with expectations. Considering the impact of uncertain factors such as the progress of outpatient coordination, we have appropriately lowered the company's profit forecast for 2024/2025 and added a profit forecast for 2026. We expect the company's net profit to be 11.03, 13.39, and 1,638 yuan respectively, and EPS of 1.89, 2.29, and 2.80 yuan, respectively, corresponding to PE 18.7, 15.4, and 12.6 times, respectively. Maintain a “buy” rating.
Risk warning: The implementation of the outpatient coordination policy falls short of expectations, the risk of store expansion falling short of expectations, increasing competition in the industry, etc.