occurrences
The company achieved operating income of 22.437 billion yuan in 2023, +11.21% year on year; net profit to mother of 929 million yuan, +18.35% year on year; net profit after deducting non-return to mother of 844 million yuan, +14.68% year on year.
The company's 2024Q1 revenue was 5,539 million yuan, +1.81% year over year; net profit to mother was 321 million yuan, +10.27% year over year; net profit after deducting non-return to mother was 311 million yuan, +10.35% year over year.
Incident reviews
23Q4 The company's revenue is stable and financial indicators are stable
23Q4: Looking at a single quarter, the company's 2023Q4 revenue was 6.396 billion yuan, -0.05% year over year; net profit to mother was 212 million yuan, +21.17% year over year; net profit after deducting non-return to mother was 198 million yuan, +17.89% year over year.
23 Annual financial data: The company's overall gross margin in 2023 was 32.55%, +0.67 percentage points year on year; the period expense ratio was 26.44%, +0.47 percentage points year on year; of which the sales expenses ratio was 20.35%, +1.03 percentage points year on year; management expenses ratio (including R&D expenses) 5.30%, -0.20 percentage points year on year; financial expenses ratio 0.79%, -0.36 percentage points year on year; net operating cash flow was 2.30 billion yuan, +17.95% year on year.
The store network is expanding rapidly, and digital means improve the operating efficiency of new stores. In 2023, the company adhered to the “four-wheel drive” strategy of direct management, mergers and acquisitions, alliances, and achieved rapid expansion. At present, the company's store network has expanded to 18 provincial markets and more than 150 prefecture-level cities, accounting for about 75% of the Chinese pharmaceutical retail market. In terms of improving the operational efficiency of new stores, the company actively adopted digital methods to shorten the average preparation period for new direct-run stores to 40 days in 2023, a decrease of 9 days compared to 2022.
As of the end of 2023, the company ranked in the top 3 for market share in 11 provinces, with the market share ranking first in 4 provinces. Stores in prefecture-level cities and below account for 76%. In a situation where the revenue of individual stores is similar, the rent and labor costs of these stores are lower than in provincial capitals, so stores in the third, fourth, and fifth tier markets are more profitable, thus increasing the company's gross margin and profit level. Among the new stores added in 2023, the number of new stores in dominant provinces and key cities was 2,913, accounting for 86% of the total number of new stores, of which 78% were stores in prefecture-level cities and below.
In 2023, the company's second-growth curve revenue increased significantly, and revenue from the franchise, alliance and distribution business increased 19.62% year over year. The annual distribution revenue of the franchise business “Health Pharmacy” is about 2.2 billion yuan, an increase of about 20% over the previous year. The annual distribution sales of the alliance business “Simple Medicine” were about 240 million yuan, an increase of 25% over the previous year.
24Q1 gross margin increased significantly, and the store network continued to expand
24Q1 financial data: 24Q1 The company's overall gross margin was 35.20%, +2.20 percentage points year on year. The company implemented the torch project to increase the comprehensive gross profit margin; the period expense ratio was 26.84%, +1.52 percentage points year over year; the sales expense ratio was 21.61%, +1.43 percentage points year on year; the management expense ratio (including R&D expenses) was 4.46%, +0.01 percentage points year on year; financial expenses ratio 0.77%, +0.08 percentage points year on year; net operating cash flow was 417 million yuan, year on year- 50.89%
By the end of the first quarter of 2024, the total number of the company's stores reached 14,109, including 9,470 direct-run stores, 4,639 franchised stores, and the number of new stores added by the company in the first quarter of 2024 was 642. The company added 3,388 new stores in 2023. At the end of the first quarter of 2024, the company's alliance business involved more than 13,500 stores (not included in the total number of company stores), and the total retail scale of allied enterprises reached 160+ billion yuan.
Investment advice
We estimate that the company's revenue for 2024-2026 will be 263.0/31.229/37.32 billion yuan respectively, up 17.2%/19.0%/19.3% year on year, and net profit attributable to mother will be 11.2/13.6/1.64 billion yuan respectively, up 20.5%/21.8%/20.2% year on year, respectively. The corresponding valuation is 19X/15X/13X. Maintain a “buy” investment rating.
Risk warning
The expansion of the company's scale has led to insufficient talent reserves, increased market competition, industry policy risks, etc.