Event: The company released its 2023 annual report and 2024 quarterly report. Revenue for the full year of '23 was $22.438 billion (+11.21%), net profit of $929 million (+18.35%), net profit of non-return to mother of $844 million (+14.68%), Q4 revenue of $6.396 billion (-0.05%), net profit to mother of $212 million (+21.17%), net profit of non-return to mother of $198 million (+17.89%). Q1 '24 revenue was 5.539 billion yuan (+1.81%), net profit attributable to mother was 321 million yuan (+10.27%), net profit after deducting non-return to mother was 311 million yuan (+10.35%).
Comment:
The main business continues to improve, and traditional Chinese medicine revenue is growing rapidly. The company's retail revenue in 2023 was 19.349 billion yuan, up 9.96% year on year, and revenue from franchise, alliance and distribution business was 2,931 billion yuan, up 19.62% year on year. By product, revenue from proprietary Chinese and Western medicines was 17.627 billion yuan, up 12.59% year on year, revenue from non-drug products was 3.150 billion yuan, up 1.13% year on year, and revenue from traditional Chinese medicine was 1,660 billion yuan, up 18.19% year on year.
Outpatient coordination is progressing smoothly, and industry leaders are expected to benefit. By the end of the first quarter of 2024, the company had 4,673 outpatient co-ordinated stores, of which 39.78% of the outpatient co-ordinated stores were directly managed, and 30.67% were directly-managed co-ordinated medical insurance stores that could use Internet prescriptions. Judging from the information already announced by local health insurance bureaus, the operation of co-ordinated funds in most core business areas of ordinary people, such as Hunan, Inner Mongolia, Tianjin, etc., is steady and sustainable. We believe that with the gradual implementation of the pharmacy outpatient coordination policy, the company is expected to continue to benefit as a leading chain in the industry.
The scale of stores continues to expand, and actively layout the sinking market. By the end of the first quarter of 2024, the total number of the company's stores reached 14,109, including 9470 direct-run stores and 4,639 franchise stores. In 2023, the company added 3,388 stores. The size of the company's stores is expected to maintain a steady pace of expansion. In 2024-2026, the company plans to open 4,000, 5,000, and 6000 stores, respectively. By the end of the first quarter of 2024, the number of the company's county+township stores accounted for 45%, and the company is actively laying out the sinking market.
Profitability continues to improve, and profit margins have increased. The company's gross margin in all regions achieved positive growth in the first quarter of 2024. The comprehensive gross margin reached 35.2%, an increase of 2.20 pct year on year, and the net margin was 6.61%, an increase of 0.41 pct year on year. In 2023, the company's gross sales margin was 32.55%, up 0.67pct year on year, and the net sales margin was 5.01%, up 0.17pct year on year. The company's overall profitability has improved markedly.
Profit forecast: As a leading pharmacy in the country with outstanding characteristics of “self-building+merger+acquisition+alliance+alliance”, ordinary people are expanding into markets at all levels with light assets. We believe that it is currently entering the dividend release stage of fine internal management and orderly external expansion, which is expected to usher in a period of rapid development. The company's net profit for 2024-26 is estimated to be 11.3 billion yuan, 13.7 billion yuan, and 1.64 billion yuan, respectively. Based on comparable company valuations, the company is given 20-25 times PE in 2023, with a reasonable value range of 38.80-48.50 yuan, maintaining the “superior to the market” rating.
Risk warning: risk of tightening health insurance policies, risk of store management, risk of store expansion falling short of expectations.