Event: Company Announces Fiscal Year 2024 Results
reviews
Revenue and profit exceeded market expectations, and health products and medical devices grew rapidly. The company achieved revenue of 27.03 billion yuan (+1.0%) in fiscal year 2024. Among them, ① Pharmaceutical's proprietary business achieved revenue of 23.74 billion yuan (+0.6%). Under the influence of the high supply base of the epidemic, the company further strengthened its basic market by creating explosive products and enriching supply. Revenue in the personal care, health care and massage equipment categories increased by more than 50% year-on-year under the company's pharmaceutical self-operated business; SKUs achieved double-digit growth. Due to the improvement of refined operation capabilities, the output per member of the platform increased significantly, and member ARPU increased 17.2% year over year.
② The pharmaceutical e-commerce platform business achieved revenue of 2.33 billion yuan (+4.1%). On January 17, 2024, the company officially completed the acquisition of advertising management rights for Alibaba Group's Tmall Health category merchants, which is expected to further enhance accurate marketing capabilities, facilitate incubation of advantageous categories, and improve the accuracy of service for platform merchants. According to the company's announcement, we expect the consolidated statement to contribute more than 1.2 billion yuan in revenue in fiscal year 2025 and have a significant impact on gross margin and net profit margin. The number of service providers on the Tmall platform exceeded 35,000 in FY2024 (+28.0%).
③ The healthcare and digital services business achieved revenue of 960 million yuan (+2.6%). In FY2024, the company's online practice expert resources were further enriched, with more than 220,000 registered medical practitioners, pharmacists and dietitians, an increase of about 20,000 over the previous year. Among them, there were more than 120,000 registered traditional Chinese medicine practitioners in Oshika Traditional Chinese Medicine, an increase of about 20,000 over the previous year. The company uses Ali Health Internet Hospital as the carrier, and its ability to diagnose and treat chronic diseases is steadily improving.
The gross margin has increased steadily, and the operating cost ratio has been significantly optimized. In fiscal year 2024, the company's gross margin was 21.8% (+0.5pct), execution expense ratio was 8.9% (-1.9pct), sales expense ratio was 6.6% (flat), management expense ratio was 1.3% (-0.1pct), and R&D expense ratio was 2.6% (+0.1pct). We believe that the main reasons for the significant optimization of the company's fulfillment fee rate include 1) the release of the epidemic at the end of 2022 and the rise in demand for influenza A drugs at the beginning of the following year. The FY24H2 compliance fee rate was about 8.3% (-4.4pct); 2) optimizing the efficiency of warehouse network usage and logistics links. We believe that as the efficiency of the use of the company's warehouse network is further improved and the algorithm is optimized, the execution fee rate is expected to improve further.
Profits exceeded market expectations, and profit margins are expected to increase further in FY2025. In fiscal year 2024, the company achieved net profit of 800 million yuan (+64.6%), corresponding to a net interest rate of 3.3% (+1.3pct), and achieved net adjusted net profit of about 1.44 billion yuan (+90.8%). The sharp increase in the company's profit side was mainly due to cost ratio optimization and an increase in interest income. The company's interest income for fiscal year 2024 was $480 million (+44.4%). As of March 31, 2024, the company's book cash and cash equivalents were $9.55 billion.
Profit forecasting
We believe that the scale effect of the company's business is expected to continue to expand under industry drivers such as the increased penetration rate of online and offline Internet services, the outflow of prescriptions, and the gradual improvement of online health insurance policies. We expect the company's revenue for the 2025-2026 fiscal year to be 31.16 billion yuan/34.78 billion yuan (the previous value was 35.33 billion yuan in fiscal year 2025. The reduction was mainly due to the impact of the epidemic material base and the uncertainty of the competitive landscape), an increase of 15.3%/11.6%, respectively. Considering the contribution of the acquisition of part of the parent group's advertising business, we expect net profit for the 2025-2026 fiscal year to be 1.56 billion yuan/1.96 billion yuan respectively (the previous value was 1.18 billion yuan in 2025, mainly due to mergers and acquisitions), with year-on-year increases of 76.3% and 25.6%, respectively.
valuations
According to the absolute valuation method, we predict that the company's equity value after 1 year will be $105.328 billion, corresponding to a share price of HK$6.34 per share (based on WACC 7.8%, with a sustainable growth rate of 3.5%). The target price remains unchanged, maintaining the “superior to market” rating.
risks
The risk of sales falling short of expectations, the risk of increasing competition in the industry, and the risk of Internet-related policies.