The company released the 2023 annual report and the 2024 quarterly report: 2023 revenue of 22.599 billion yuan, net profit attributable to mother of 1,412 billion yuan, and net profit of non-return to mother of 1,362 billion yuan, up 13.59%, 11.90%, and 10.92%, respectively. Among them, the fourth quarter of 2023 achieved operating income of 6.70 billion yuan, net profit of 413 million yuan, and net profit of 395 million yuan after deducting non-return to mother, with year-on-year increases of 2.47%, -5.81%, and -9.25%, respectively. The first quarter of 2024 achieved operating income of 5.971 billion yuan, net profit of 407 million yuan, and net profit of non-return of 400 million yuan, with year-on-year increases of 13.39%, 20.89%, and 24.26%, respectively.

Performance increased under pressure from a high base. Considering the base pace, it is expected that the next quarter will continue to perform well.

From December 2022 to January 2023, due to the demand for centralized drug purchases due to the outbreak of concentrated respiratory diseases, the 2022 Q4 and 2023Q1 performance base was relatively high. However, the company maintained steady growth through factors such as new stores and new in-store climbs, epitaxial mergers and acquisitions, and the frequent occurrence of a new round of respiratory diseases in early 2024. 2023Q4's revenue in a single quarter reached 6.70 billion yuan, a new quarterly high. 2024Q1 Considering the relatively low base of 2023Q2 and Q3, the growth rate is expected to remain impressive in the following quarters.

The store expansion target was basically achieved, and the share of high-tech stores and sub-new stores gained momentum for subsequent growth. The company adheres to the development strategy of “regional focus, steady expansion”. Through the “new opening+merger and acquisition+franchise” store expansion model, the company added 3,196 new stores in 2023 (1613 self-built, 559 mergers and acquisitions, 1024 franchises), and 2024Q1 added 701 stores (364 self-built, 166 mergers and acquisitions, 171 franchises). As of the 2024 quarterly report, the total number of stores in the company was 13,920 (including 3,157 franchised stores).

Strengthen specialized pharmaceutical service capabilities and take advantage of health insurance to coordinate the trend. As of the 2023 annual report, the company has 675 hospital side stores and 305 specialty DTP pharmacies, including 246 dual-channel stores, opened 4,200+ outpatient co-ordinated medical insurance pharmacies, operated 250+ drugs negotiated under national health insurance agreements, more than 800 kinds of hospital prescriptions, and established deep partnerships with more than 150 specialty prescription drug suppliers. With the improvement of the company's pharmaceutical service capacity and the integration of integrated medical insurance to catalyze the outflow of prescriptions, the company's proprietary Chinese and Western medicines accounted for 75.68% of revenue in 2023, a further increase compared to 74.15% in 2022.

Investment ratings and profit forecasting: In the context of continued increase in industry concentration, we are optimistic that the company will increase its market share by expanding stores and lay the foundation for future growth; at the same time, under the impetus of various policies, the prescription outflow trend is becoming more and more obvious, and leading companies are expected to benefit first. Net profit due to mother for 2024-2026 is estimated to be RMB 17.69, 21.53, and RMB 2,629 billion, respectively, corresponding to PE26/22/18x, maintaining the “increase” investment rating.

Risk warning: Effects such as increased competition, fluctuations in the macro environment, and the outflow of prescriptions falling short of expectations.