Key points:

Steady growth in Q1 results from 2023 to 2024

In 2023, the company achieved operating income of 22.588 billion yuan, an increase of 13.59% over the previous year; realized net profit of 1,412 billion yuan, an increase of 11.90% over the previous year; realized net profit without deduction of 1,362 billion yuan, an increase of 10.92% over the previous year. By business, in 2023, the company's pharmaceutical retail business achieved revenue of 20.085 billion yuan, an increase of 12% over the previous year, accounting for 89.36% of total revenue, and the wholesale business achieved revenue of 1,892 billion yuan, an increase of 39.23% over the previous year, accounting for 8.38% of total revenue. Under the high base of 2022 results, the company maintained relatively steady growth in 2023, reflecting the steady nature of the company's operations.

In the first quarter of 2024, the company achieved operating income of 5.971 billion yuan, a year-on-year increase of 13.39%; realized net profit of 407 million yuan, an increase of 20.89% over the previous year; and realized net profit of 399 million yuan without return to mother, an increase of 24.26% over the previous year. Overall revenue continues to grow steadily, and net profit is growing at a high rate.

The operating system is efficient, and the profit margin level is the highest in the industry

Yifeng Pharmacy has implemented comprehensive optimization of the operating system. Through process innovation and digitalization to empower business development, the company's business operation, management efficiency and profitability continue to improve. Compared with other listed companies in the A-share offline pharmacy industry, Yifeng Pharmacy's gross sales margin reached 38.21% in 2023, ranking first among the eight listed offline pharmacy companies, 2.31 percentage points higher than the second-ranked company. The net sales margin of 6.25% also ranked first in the same industry, 1.34 percentage points higher than the second-ranked company. Higher gross margin and net profit margins than peer companies indicate that Yifeng Pharmacy has good supply chain management capabilities and internal operation management capabilities.

On the basis of focusing on core regions, the number of stores is growing rapidly, Yifeng Pharmacy adheres to the development strategy of “regional focus and steady expansion”. With the market expansion goal of “consolidating Central and South China, East China and expanding the national market”, it has formed a multi-level store network layout of flagship stores, regional central stores, medium-sized community stores and small community stores through the method of “new opening+mergers and acquisition+franchise”.

In terms of the number of stores expanded, in 2023, the company added 3,196 new stores, including 1,613 self-built stores, 559 mergers and acquisitions, and 1,024 franchise stores. Judging from the geographical distribution, the vast majority of these new stores are concentrated in the company's strategic core regions, including 1,322 in the central and southern regions, 927 in East China, and 733 in North China. By the end of December 2023, the number of the company's stores reached 13,250, an increase of 29.04% over the previous year. In the first quarter of 2024, the company added 701 new stores, including 364 self-built stores, 166 mergers and acquisitions, and 171 new affiliate stores. The company is still expanding at a high rate.

Join forces online and offline to continue to handle the outflow of hospital prescriptions

In the offline field, relying on hospital side stores, we actively lay out pharmacies specializing in DTP, designated “dual-channel” medical insurance sites, and co-ordinated pharmacies for medical insurance for very chronic diseases, and actively introduced types of national health insurance negotiations. At present, Yifeng Pharmacy has opened 675 hospital side stores (stores within 100 meters of second-tier hospitals and above), 305 DTP specialty pharmacies, more than 240 dual-channel medical insurance stores, and more than 4,200 co-ordinated medical insurance pharmacies; introduced nearly 250 drugs negotiated through national health insurance agreements, and nearly 800 kinds of hospital prescriptions have been released. At the same time, the online sector actively connects with government and hospital prescription circulation platforms at all levels to undertake outflow electronic prescriptions, forming a closed loop of prescription circulation at Yifeng Hospital.

Investment advice

The company has obvious competitive advantages in core regions such as Central South China and East China, outstanding scale advantage, steady business expansion, and excellent internal management capabilities. While performance is steadily improving, profit margin level ranks first among peers, and profit growth is highly deterministic. The company is expected to achieve revenue of 268.58/329.90/41.186 billion yuan in 2024-2026, net profit of 15.33/18.67/2,248 billion yuan, and corresponding EPS of 1.26/1.54/1.85 yuan, respectively. Covered for the first time, the company was given an “increase in weight” rating.

Risk warning

Risk of changes in health insurance payment policies; increased risk of industry competition; risk of impact on Internet pharmacies.