Since the full turnaround of adjusted net profit in the 2023 fiscal year, Pharmaron (09885) has further opened up its profit space.

In recent years, the overall growth of China's pharmaceutical distribution market has been rapid. With policies such as centralized drug procurement, zero markup on drugs within hospitals, and outflow of prescriptions being continuously implemented, the external hospital drug market has gradually become a hotly contested territory that is increasingly important for all participants.

As the largest digital comprehensive service platform for external hospital pharmaceutical industry in China, on August 26, Pharmaron (09885) publicly announced its latest semi-annual performance, achieving double-digit revenue growth and turning a profit for the first time. Net income exceeded 13 million yuan, turning positive for the first time from significant losses.

With digitalization at its core, Pharmaron's profit potential is gradually opening up, indicating that the company's business model has received market validation. Behind this, what did Pharmaron do right in this race?

Stable revenue growth in the first half of the year, with continuously increasing user stickiness.

According to the "Securities Times" app, in the first half of this year, Pharmaron achieved "high-quality growth" of both revenue and profit. The report shows that the company's operating revenue was 8.81 billion yuan, a year-on-year increase of 10.6%; net income exceeded 13 million yuan, turning positive for the first time from significant losses; adjusted net profit exceeded 91 million yuan, a significant increase of 30.3% year-on-year; operating cash flow continued to flow positively, reaching 0.42 billion yuan, an increase of 14.6% year-on-year.

The company's increased revenue and profit in the first half of the year benefited from the continuous release of the synergistic effect of "platform + self-operated model".

In terms of platform business, the company attracted about 8,900 upstream sellers, 0.426 million pharmacies, and 0.31 million grassroots medical institutions during the reporting period. The GMV of third-party merchants reached 14.234 billion yuan, a year-on-year increase of 5.1%. With a high user base, Yaoshiban achieved strong stickiness. During the reporting period, the average number of paid buyers per month reached 0.396 million, a year-on-year increase of 19.6%. The payment rate exceeded 93%, and each paid buyer had an average of about 28 orders per month. In addition, the company continued to actively promote the increase in product richness and vigorously develop the traditional Chinese medicine (TCM) business. It can supply more than 0.125 million SKUs and achieve sales of over 0.932 billion yuan, a year-on-year increase of 96%.

It is worth noting that the platform commission rate has increased from 3.2% in the same period last year to 3.3% this year, while the subsidy rate has remained basically stable. As a result, as of the first half of 2024, the platform's gross profit margin has increased from 81.8% in the same period last year to 84.2%.

In terms of self-operated business, the company's GMV in the first half of the year was 9.596 billion yuan, a year-on-year increase of 12.9%. Based on the concept of "fast, good, and cost-effective", the company continues to improve the user experience. During the reporting period, Yaoshiban's self-operated business had an average of over 0.3 million available SKUs per month. In order to improve delivery capabilities, Yaoshiban launched same-city delivery services such as "half-day delivery" and "same-day delivery" in 17 cities. During the reporting period, about 58% of same-city orders achieved half-day delivery, an increase of over 41% compared to the same period last year. Cross-province delivery took 39 hours to cities and 49 hours to towns, and inventory turnover days remained at 31 days, which is better than the industry average. Yaoshiban will further develop same-city vehicle delivery services and conduct tests on medical cold chain delivery.

Based on the "platform + self-operated" business, Yaoshiban is advancing the "upward" strategy, focusing on large single products with its own factories, approvals, and brands, and launching the self-owned brand "Le Yaoshi". The GMV of exclusive strategic cooperation brands and self-owned brands has reached 0.224 billion yuan, a significant increase of 94% year-on-year. The double growth in the number of Le Yaoshi varieties and sales has become a strong driving force for the brand-first business. During the reporting period, the number of Le Yaoshi varieties exceeded 170, officially entering the era of popular products, and the cumulative number of purchasing customers exceeded 0.3 million, with a year-on-year GMV growth of about 160%.

The seasonal new product launched this year, "Le Yaoshi Huoxiang Zhengqi Oral Liquid", has covered approximately 0.1 million terminal users in just 5 months since its launch, with monthly sales exceeding tens of millions of yuan in June 2024. This fully demonstrates the brand influence in the sinking market and the efficiency of the business expansion team.

With the continuous deepening of the "upward" strategy, Yaoshiban continues to seek products with explosive channel potential. The coverage of "Le Yaoshi" products continues to increase, and Le Yaoshi and brand-first business are expected to become new profit growth points for Yaoshiban.

Digitalization has promoted business development and improved capital efficiency, and the business model has been validated.

Whether it is the platform business that connects the upstream and downstream of the industry chain or the self-operated business that provides "fast, good, and cost-effective" services to customers, digital capability is the core of Yaoshiban's entire business. Through the digital capabilities of the platform, Yaoshiban deeply connects upstream pharmaceutical companies with distributors and downstream pharmacies and grassroots medical institutions, forming a strong network effect to facilitate pharmaceutical transactions.

According to the Wise Finance app, from the most basic procurement of pharmaceuticals to the management, outbound logistics, and distribution of the supply chain, and then providing digitalized operational services to pharmaceutical companies, including digitized diagnosis and treatment, the digitalized capabilities run through the entire business of the pharmacist, becoming an important driving factor for the company to empower the upstream and downstream to achieve a significant improvement in the operation efficiency of the entire chain.

Thanks to digital empowerment, the business expansion team of the company's workforce has further improved, with each member being able to manage an average of about 150 pharmacies, an increase of more than 14 compared to the same period last year; in the first half of 2024, each member of the business expansion team was able to bring about RMB 8.2 million in GMV, a year-on-year increase of 6.4%.

In addition, under the improvement of business efficiency, the company's capital turnover efficiency has also been greatly improved. For example, thanks to intelligent supply chain management, during the reporting period, the pharmacist's payable turnover days were about 60.6 days, inventory turnover days were about 31.0 days, and accounts receivable turnover days were about 0.6 days. As a result, the cash cycle was shortened to about -28.9 days, further optimizing the cash cycle.

The fast-turnover business model has brought efficient cash management to the pharmacist, as well as cash deposits to the platform, effectively ensuring the safe and rapid expansion of its overall business scale. At the same time, the increased cash scale has brought additional revenue to the company beyond gross profit, further increasing the profit level.

Looking back at the retail market of pharmacies in the first half of 2024, according to the statistics of Zhongkang CMH, the national retail market of pharmacies from January to May this year was about 217.8 billion, a decrease of 3.7% year-on-year. While the industry as a whole experienced a slight decline, the number of stores in the first quarter of this year increased by 7.7% compared to the same period last year. According to Zhongkang Ling Speed system data, in the first half of 2024, the average sales per store decreased by 10.6% year-on-year, and the unit price decreased by 8.9% year-on-year, further intensifying industry competition.

Against this backdrop, the pharmacist has achieved steady revenue growth in the first half of the year, with the platform's user stickiness continuing to increase and the payment rate further rising, maintaining a considerable pace of performance, which in fact reflects its business model's ability to run through the industry and possess stable growth capabilities against the cycle.

In 2024, it is a critical year for the implementation of the clinic’s overall planning. With a huge space in the out-patient market, pharmacy medical insurance is gradually entering an era of strong regulation. With the strengthening of the construction of basic medical and health services, further driving the flow of prescription drugs to out-patient pharmacies and grassroots medical institutions and other related favorable policies gradually being implemented, the incremental space for outflow of prescriptions is promising.

According to Sinolink Securities, the medical insurance, medical, and pharmaceutical reform policies are expected to stabilize, and the market's previous excessive concerns are expected to be eased; after the half-yearly report window, the pharmaceutical industry's performance in the second half of the year is expected to see an overall year-on-year improvement and a month-on-month increase, and the golden window for increasing the allocation of pharmaceutical sectors has been opened.

Dongwu Pharmaceuticals believes that the current valuation of the pharmaceutical sector has bottomed out. With the recovery of pharmaceutical sector revenue growth and the unchanged rigid demand caused by aging, the pharmaceutical sector is expected to strengthen in the second half of the year.

Looking ahead, Pharmacist Assistance indicates that the company will focus on expanding its traditional Chinese medicine business, introducing more varieties of standardized traditional Chinese medicine, and building a digital operation system for traditional Chinese medicine; further enhancing logistics capabilities, broadening and improving supply efficiency; continuously creating the "Spectrum Cabin" grassroots intelligent medical overall solution, achieving a major strategic upgrade from medicine to medical.

With the gradual arrival of industry policy favorable and a strong market trend, Pharmacist Assistance is expected to be a priority beneficiary of this trend, and its performance is expected to maintain sustained and steady growth.