Excluding steady growth due to special factors, the Q2 Performance and Cash Flow Improvement Company released its 2024H1 annual report: 2024H1 achieved revenue of 77.171 billion yuan (-2.76%), net profit of 1.208 billion yuan (-10.08%), net profit of 1.108 billion yuan (-8.90%) after deducting non-net profit of 1.108 billion yuan (-8.90%), and net cash flow from operating activities was -3.201 billion yuan (-717.71%). Excluding the impact of seasonal diseases such as influenza and the epidemic during the same period last year, operating income increased 0.15% year on year, net profit to mother increased 9.50% year on year, and non-net profit deducted from mother increased 11.84% year on year, and maintained steady growth. Net cash flow from the company's operating activities declined compared to the same period last year. The main reason is that the company's accounts receivable collection efforts were less intense in the middle of this year. The company will step up its accounts receivable collection efforts by the end of this year to ensure a significant increase in sales payback, and achieve a positive operating cash flow for the whole year in line with operating performance.

On a quarterly basis, in 2024, Q1-Q2 companies achieved operating income of 404.72 (-3.85%) and 366.99 (-1.52%) billion yuan, respectively, net profit attributable to mother of 5.38 (-4.19%) and 6.70 (-14.31%) yuan, respectively, and achieved net profit of 5.22 (-9.01%) and 6.59 (-8.81%) yuan, respectively. Net profit attributable to mother increased 24.60% month-on-month in Q1 and 26.28% month-on-month after deducting non-net profit. Compared with Q1, net cash flow from Q2 operating activities has been corrected to 0.453 billion yuan. The company will continue to increase its efforts to settle accounts receivable at the end of the year. The net cash flow from operating activities for the whole year is expected to be a positive number in line with operating performance.

In terms of profitability, 2024H1 has a gross sales margin of 7.92% (-0.5pct) and a net sales margin of 1.62% (-0.2pct).

Looking at the cost ratio, the 2024H1 company's sales expense ratio is 2.81% (-0.20pct), the management expense ratio is 1.76% (+0.04pct), and the R&D expense ratio is 0.09% (-0.02pct).

The financial expense ratio is 0.76% (+0.00pct).

General general sales continued to grow rapidly, and the new growth curve continued to consolidate by sector. The digital pharmaceutical distribution and supply chain business segment 2024H1 achieved sales revenue of 63.781 billion yuan, a year-on-year decrease of 5.49%. The total sales revenue of the General Brand Promotion (CSO) business segment of 2024H1 reached 9.862 billion yuan, an increase of 14.18% over the previous year. Among them, the company's general pharmaceutical brand promotion business achieved sales revenue of 5.42 billion yuan, an increase of 9.52% year on year; medical device general brand promotion business achieved sales of 4.442 billion yuan, an increase of 20.45% year on year. The pharmaceutical industry's self-production and OEM business segment 2024H1 achieved revenue of 1.438 billion yuan, an increase of 21.61% over the previous year. The new pharmaceutical retail business segment 2024H1 achieved revenue of 1.456 billion yuan, an increase of 1.02%; the healthcare and technology value-added services sector achieved revenue of 0.103 billion yuan, a year-on-year decrease of 1.18%; and the digital logistics and supply chain solutions segment 2024H1 achieved revenue of 0.471 billion yuan, an increase of 16.84% year on year.

The “three new, two modernizations” strategy progressed smoothly, and continued to cultivate new momentum in the first half of 2024. Facing external environmental challenges and pharmaceutical industry policy influence, the company unswervingly vigorously promoted the implementation of the “new products, new retail, new medical treatment, digitalization and real estate securitization (REITs)” (“three new and two modernizations” for short) strategy, and achieved remarkable results. In terms of new retail, as of the end of July 2024, the number of self-operated and franchised pharmacies of the company reached 24,387, of which 5,499 new affiliate stores were added in 2024. The company plans to sprint to reach the target of 30,000 stores ahead of schedule in the second half of the year. In the first half of the year, sales to franchisees reached 2.419 billion yuan, an increase of 47.32% over the previous year. In terms of new medical treatment, the Internet Medical Division of Kyushu Street Health Technology Group, a subsidiary of the company, has launched proxy operation services for physical Internet hospitals. The company will continue to build a clinic operation system and build the “Jiuxin Clinic” brand. The new medical business has developed 412 “Jiuxin Clinic” member stores. In terms of real estate securities, public REITs and pre-REITs projects are progressing smoothly. We strive to complete the public offering REITs and successfully issue the first preREITS before October this year, revitalize the company's assets, and restructure the company's asset-light business model.

Profit forecasts and investment advice

We expect the company's revenue for 2024-2026 to be

165.27/185.195/209.438 billion yuan, net profit to mother was 2.618/3.015/3.491 billion yuan, respectively. The PE corresponding to the current stock price is 8.6/7.5/6.5 times, respectively, maintaining the “buy” rating.

Risk warning:

The implementation fell short of the expected risk; the operation of the REITs fund fell short of the expected risk.