Key points of investment
The company disclosed the 2023 annual report and the 2024 quarterly report. The 2023 revenue was 9.081 billion yuan, an increase of 20.84% over the previous year. Net profit attributable to mother was $414 million, up 10.72% year on year (after adjustment); 2024Q1 revenue was 2,314 million yuan, up 6.79% year on year. Net profit attributable to mother was 52 million yuan, a year-on-year decrease of 31.51%. Rapid expansion outside of Yunnan Province, the share of new stores and sub-new stores has declined. The increase in the number of stores and the optimization of the store age structure under national expansion are expected to drive revenue and profit growth.
Growth: Store growth & structure optimization to drive revenue growth (1) Stores continue to grow rapidly, and the decline and expansion accelerates. In 2023, Jianzhijia's total number of stores reached 5,116, including 4777 pharmaceutical retail stores. At the end of 2022, the company had 3,763 pharmaceutical retail stores. The number of stores maintained a rapid growth trend. Since the completion of the Tang People merger and acquisition in August 2022, the company's nationwide expansion has continued. In terms of regional distribution, the number of pharmacy stores in Yunnan was 2,759, up 15.25% year on year, and the number of stores in Hebei was 479, up 25.72% year on year. Stores in dominant regions are still expanding well, which is expected to contribute more rapidly to revenue and profit growth due to scale effects; the number of stores in Chongqing, Liaoning and other places is expected to bring new contributions. Judging from the store structure, the proportion of Yunnan store structure dropped to 57.76%; the number of pharmacies in Sichuan, Chongqing, Gui, and Hebei The proportion of structures increased to 42.24%, rapid expansion outside the province; judging from the store age structure, the company had a total of 1129 new stores and sub-new stores in 2023, accounting for a fall of 22.07% from 24.05% in the same period last year. Although it is still in a high state, continuous optimization of the store age structure is expected to bring long-term profit contributions; (2) The equity incentive plan highlights confidence in high profit growth. In April 2024, the company disclosed its 2024 equity incentive plan. The performance target is based on 2023 net profit (net profit after deducting non-net profit). The net profit growth rate for 2024-2026 is not less than 15%, 36%, and 60% (excluding the impact of share payment fees), which fully demonstrates the company's confidence in future high performance growth.
Profitability: Changes in product structure & rapid store expansion, net interest rate or slight decrease (1) Changes in product structure, slight decrease in gross margin. The company's gross profit margin in 2023 was 35.88%, down 0.26pct from the previous year. We believe that the change in gross margin was mainly due to changes in the product structure under the influence of policy, economic environment, and the company's nationwide expansion. In 2023, the company's share of proprietary Chinese and Western medicines revenue increased by 4.36%, up 1.75pct year-on-year. We believe that with the gradual normalization of demand and the effects of the company's scaling up, the company's gross margin may remain the same in 2024-2026 2024Q1 A relatively stable level; (2) 2024 net interest rate may decrease slightly. In 2023, the company's net profit margin was 4.56%, down 0.42pct year on year; 2024Q1 net interest rate was 2.24%, down 1.24pct year on year. We believe that the decline in net interest rates is mainly due to the rapid expansion of the company's stores outside the province and continued growth in sales expenses. In 2024, the company's new stores and sub-new stores will still account for a relatively high share. Store expansion will continue, expenses may still be under some pressure, and net interest rates may still drop slightly.
Profit forecasting and valuation
Based on the above analysis, we expect the company's total revenue for 2024-2026 to be 108.55/ 131.44/15.854 billion yuan, respectively, up 19.53%, 21.09%, and 20.62% year over year; net profit to mother will be 4.77/5.69/ 687 billion yuan, respectively, up 15.06%, 19.34%, and 20.65% year-on-year respectively. The corresponding EPS is 3.70/4.42/5.33 yuan/share, corresponding to 14 times PE in 2024, maintaining a “gain” rating.
Risk warning
The risk of increased competition in the industry; the risk of policy changes; the risk of demand fluctuations.